CNS Canada — ICE Futures Canada canola contracts fell to their lowest levels in over three and a half years during the week ended Wednesday, as speculative selling was met with only scale-down end-user pricing.
While canola is oversold and due for a correction, further losses are still likely.
“Speculators are massively short in canola,” said Ken Ball of PI Financial in Winnipeg. Fund traders, he added, were putting on long positions in CBOT soybeans while selling canola and “pushing both ends of the spread.”
The spread between canola and the soy complex “however you want to measure it” is at its widest in history and is continuing to widen, he said.
A bushel of canola in Western Canada is currently worth about half of what a bushel of soybeans in Iowa is worth, but Ball said the weakness would continue as long as canola futures were not meeting any resistance to the downside.
“Commercials all around the world are looking at canola and are just drooling at the value,” said Ball. However, “can they get it in a reasonable time? Maybe not,” he added, noting that the logistics issues moving all commodities out of the Prairies were limiting the actual buying interest.
The nearby March contract settled at $407.50 per tonne on Wednesday and Ball expected the futures will “likely see a three” in front of them within the next two weeks.
The speculators will eventually decide to cash out and cover their shorts, but for now they are not letting go, added Ball.
— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.