ICE weekly outlook: Potential remains for higher canola prices

MarketsFarm — Canola prices fell back during the course of the last week, but should begin to move higher going into the coming week, according to trader Ken Ball of PI Financial in Winnipeg.

Canola likely “reached the top” last week with profit-taking having set in, he said, noting a lot of money pours into the market and must eventually come out.

“But can we re-ignite the canola market?” he said.

“We have the realization that there are a lot soybeans coming out of South America,” he added.

Barring some sort of unprecedented catastrophe, Brazil remains firmly on pace to produce a record soybean crop with harvest just getting underway.

In last week’s supply and demand estimates from the U.S. Department of Agriculture (USDA), Brazil’s production was forecast to be 133 million tonnes. CONAB, Brazil’s equivalent to USDA, pegged the crop at 133.7 million tonnes.

USDA’s estimate for soybean production in Argentina was at 48 million tonnes, with the Rosario Grain Exchange coming in at 47 million. While not a record crop, Argentina’s is set to be a hefty one.

Rains over South America, during the weekend of Jan. 16-17, certainly threw the proverbial wrench into the Chicago Board of Trade (CBOT) soy complex.

After the Martin Luther King Jr. Day holiday in the U.S., soybeans plummeted 31 cents per bushel, with another drop of 16.25 cents on Wednesday, which brought the March contract down to US$13.395 per bushel.

Although the spillover pulled canola lower, Ball pointed out canola remained far cheaper than soybeans.

As those South American soybeans enter the global market, there will be pressure on CBOT soybeans to come down — and, of course, taking canola along for the ride.

A saving grace for North American soybeans and canola will be their respective tight ending stocks. USDA projected 2020-21 soybean ending stocks to fall to 3.8 million tonnes — down more than 73 per cent from the previous year’s carryout.

The most recent numbers from Agriculture and Agri-Food Canada (AAFC) put canola ending stocks for 2020-21 at 1.2 million tonnes, down almost 62 per cent from 2019-20.

Such tight ending stocks could lead to price rationing to kill demand, especially if stocks are exceedingly low.

“Canola could hit new contract highs in the spring,” Ball said.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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