MarketsFarm – The ICE Futures canola market largely held within its well-established sideways trading range during the week ended Oct. 26, with only the nearby November contract breaking higher as short-covering ahead of its expiry gave the month a boost.
The January contract has held in a narrow range between C$860 and C$880 per tonne for the past three weeks, while the product values have trended higher. The result is widening crush margins, which imply canola is undervalued, according to Ken Ball of PI Financial in Winnipeg.
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“The crush margins can’t persist at these levels,” said Ball, adding “eventually canola will get so undervalued that it will attract a rush of buying and (prices) certainly could go higher.”
However, that depends on soyoil staying firm as well. “Canola doesn’t have to go up, but at some point in time the gap will have to close,” said Ball.
Otherwise, there will just be too much demand for the available supplies of canola and the market will need to work to ration some of that demand.
“There are two sides to the gap, either the product values will go down or canola will go up… The dam will burst eventually,” said Ball.
