ICE’s canola futures climb higher on lower loonie

StatsCan Some traders expect the agency to boost 
canola stocks in the report to be issued Feb. 5

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The unexpected drop in the value of the Canadian dollar helped canola futures on the ICE Futures Canada trading platform push upward during the week ended Jan. 25. The weak Canadian unit had the benefit of sparking some aggressive buying from both the domestic and export sectors.

As if by cue, there were unconfirmed reports of fresh Canadian canola export sales put on the books during the reporting period. The sales, while unconfirmed, were said to have included both canola seed as well as canola oil.

Adding to the strength displayed by canola were nervous short-position holders, who ended up buying back those previously sold contracts on concerns about the dryness issues which have been hovering over much of Argentina’s soybean-growing regions.

The ability of the March canola futures to hold above key technical resistance at $600 per tonne, also stimulated some additional chart-based demand from fund accounts.

Concerns about tightening canola supplies in Canada, due to the strong usage, only added to the supportive tone experienced by values.

The upside in canola was restricted by bouts of profit-taking and from elevator company hedge selling, particularly in view of Prairie farmers taking advantage of $14 or better cash bids being offered by these companies and domestic crushers.

Activity in the milling wheat, durum and barley market on the ICE Futures Canada platform remained uneventful as interest in trading these commodities remains absent. Some arbitraging of value for barley by the exchange was the only action seen.

Soybean futures at the Chicago Board of Trade (CBOT) managed to push upward during the reporting period, with the trek to higher ground occurring at a reluctant pace. There was a lot of “give and go” on the South American soybean production front, with movement in values dependent on the ever-changing weather outlook, particularly for Argentina.

One day dryness was hurting the crop; the next day the forecast included beneficial rain, which created a lot of confusion. However, while some doubt has been cast over production, most market participants are still of the belief that soybean output from that region of the globe will be record high.

Steady demand from the export and domestic sector helped to keep a firm floor under CBOT soybean values.

Corn futures on the CBOT experienced small declines during the reporting period, with the continued absence of demand from the export sector and the continued diminished usage of the commodity in the domestic market, generating the downward price slide.

The jump in the value of the U.S. dollar also did not do corn futures any favours.

The price trend in wheat futures on the CBOT, MGEX and KCBT was to the downside during the week. The arrival of beneficial rains in the U.S. Midwest and southern wheat-growing areas of the U.S. accounted for some of the price weakness. Export demand for U.S.-based wheat also continued on the thin side, which further contributed to the bearish price sentiment.

The lack of demand for U.S. wheat continues to surprise individuals, especially with wheat output in the other parts of the globe suspect at best. Most participants feel that U.S. wheat continues to be highly priced and have been seeking alternatives instead.

Canola on its own

While the South American weather forecast will continue to have an impact on the direction of the North American oilseed sector, canola has shown signs of wanting to break out on its own.

There is no doubt that if South America starts to harvest a record-size crop, canola will feel some of the downward price pressure associated with that bearish news.

However, the extremely tight canola ending stocks picture may provide an opportunity for the commodity to enjoy trading at a bit of a premium to soybeans.

Visible stocks of canola in Canada as of Jan. 20 were pegged by the Canadian Grain Commission (CGC) at only 891,900 tonnes. At the same time a year ago, stocks of canola were sitting at 1.382 million tonnes.

This in turn has resulted in some concern about just how much canola is actually out there, given the strong usage pace.

Farmer deliveries of canola, despite strong cash bids, also continue to be slightly behind the year-ago level. CGC figures for the period ended Jan. 20 in the 2012-13 crop year reveal 7.433 million tonnes of canola have been delivered into the commercial elevator system, down from the 7.881 million tonnes at the same time a year ago.

The domestic disappearance of canola also was ahead of the year-ago pace. An estimated 3.243 million tonnes of canola have been used in the domestic sector so far, based on the CGC stats. Last year at the same time, the figure was sitting at 3.183 million tonnes.

Some market participants feel that Canada’s canola ending stocks at the end of the 2012-13 season will be extremely tight. There are ideas that this could be a correct assessment. However, on the flip side of the coin, there are already ideas that the Statistics Canada stocks in all positions report, to be released Feb. 5, will come up with a larger-than-anticipated canola number, as the government agency bumps up production totals.

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