Canola futures may have moved lower and set fresh contract lows during the week ended Jan. 8, but the worst is yet to come.

The outlook for canola prices is already grim, as the large Canadian supply situation, logistical problems moving the crop out of the country and the resulting expected large ending stocks are expected to continue overhanging the market.

A bearish technical bias also has the futures pointed lower in the long term. Expectations that farmers will start to increase their hedges in the futures marketing going forward will also weigh on the market.

And with outside oilseed markets now also starting to turn to a weaker bias, canola will have a hard time seeing any significant upward movement going forward, said analysts.

“The dominant downswing in the soybean oil is starting to weigh here. It’s just pulling canola down,” said Ken Ball of PI Financial in Winnipeg. “And the soybeans themselves have started to show signs recently of rolling over and heading lower. So, the whole environment is turning very weak again.”

How far canola drops going forward will depend on what happens in the Chicago soybean complex, as well as how big the South American soy crop ends up being.

“It hinges now very greatly on the South American crops,” said Ball. “If South America comes through with a big one, by spring, we may see some prices that are going to shock people.”

Ball added he wouldn’t be surprised to see canola futures trading down in the $350 to $400 per tonne band at some point in the future.

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