ICE weekly outlook: Little upside left in canola

CNS Canada — Canola futures on the ICE Futures Canada trading platform moved higher during the week ended Wednesday, on the back of speculative-based short-covering after nearby futures fell below $400 early in the week.

Oversold price sentiment and continued ideas that canola is undervalued compared to other oilseeds were supportive, as was the sharp drop in the value of the Canadian dollar seen at the end of the week.

But the rally will likely be short-lived, as “it’s a bounce in a bear market,” said Errol Anderson of ProMarket Communications in Calgary.

The market could continue to move up slightly in the near term, he added, if the Canadian dollar stays weak and short-covering continues.

Upside in the market will be limited, he said, adding that resistance in the new-crop November contract holds at $455 per tonne. The November contract settled Wednesday at $449.10 per tonne.

To continue the rally, the market will need some fresh supportive news, Anderson said.

“If we don’t get the fresh news, in all honestly, I think we’re going to fall back again,” he said. “I still believe that we’re heading down to $380 per tonne (in the nearby contracts).”

As the market moves higher, farmers will likely start hedging to take advantage of the stronger prices, especially as cash flow needs come into play in March.

The trade will also focus on the upcoming 2014-15 canola crop, and will keep an eye on logistics issues that continue to plague western Canadian farmers.

The logistical problems will likely keep a lid on the market going forward until they are worked out, and the only solution for now is time.

“If the weather is normal, we’ll be dragging our feet right through to June in this market,” Anderson added.

— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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