After continuing to take a barrage of heavy hits during the week of Dec. 1 to 7, canola futures on the Intercontinental Exchange are now faced with a fork in the road.
They can either resume the downward spiral, busting through support level after support level, or they could see successive increases that could bring back the glimmer of $700 per tonne.
Canola’s slide lasted for five sessions, beginning after it closed Nov. 28 at $707.60 per tonne in the January contract, with March at $711.50. By the time the declines stopped, January dropped $57.70 per tonne, with March down by $52.20.
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A multitude of factors combined to force ICE canola futures downward, including speculative funds seeking to add to the massive short position they built, the commercials wanting to liquidate their longs, and farmers looking to get rid of part of their canola on the idea that anything over $700/tonne is no longer a reality.
Playing into this bearish conglomeration was the Dec. 4 Statistics Canada production report, in which the federal agency increased its call on 2023-24 canola production by about 900,000 tonnes to 18.3 million, matching the average trade guess.
With more canola to be had, there was less pressure on export sales and domestic consumption. As well, some in the trade started to wonder if StatCan’s output number was smaller than whatever canola was really out there, and that led to more pressure on the oilseed.
Exacerbating the situation were mounting losses in Chicago soyoil. As the market has long known, where soyoil goes, so often does canola. The January soyoil contract gave up 3.6 cents per pound by Dec. 6 to settle at 49.34 cents. Essentially, canola didn’t have a leg to stand on.
In Brazil, the soybean crop was still projected to be a record harvest despite adverse conditions during planting. It’s water-logged south and parched north resulted in delayed sowing. But most consultancy projections remained in the high 150-million-tonne range as Conab, Brazil’s equivalent to the United States Department of Agriculture, forecast a crop of just over 160 million tonnes.
Production is set to rebound in Argentina, and when combined with Brazil, some 30 million more tonnes of soybeans would be combined this year than last, so there wasn’t much wiggle room left for Canadian canola.
In Australia, the picture for canola improved a little, with a projected 5.5 million tonnes, up from the previous forecast of 5.2 million. However, that would still be 37 per cent less than was harvested last year, giving a bit of hope for Canada.
As biodiesel production ramps up, demand for oilseeds will increase. That could be canola’s saving grace in the long term. But for the short term, there’s not too much hope for a massive price spike before Christmas.
