ICE Futures Canada canola contracts remained stuck in a steady downtrend Wednesday as the global economic uncertainty leading to speculative liquidation in many commodities spilled into grains and oilseeds as well.
While the fundamentals remain relatively supportive for canola, the ongoing economic uncertainty will likely keep the path of least resistance to the downside, according to analysts.
"Canola is being dragged down with everything else," said analyst Jon Driedger of FarmLink Marketing Solutions in Winnipeg, pointing to recent losses in soybeans, crude oil and North American stocks.
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In addition to speculative selling, buyers and end users, who may see good value at these prices, are still sitting on their hands waiting for the current economic turmoil to subside a little, said Driedger.
However, he said, the fundamentals are relatively solid for canola, with the strong basis levels available across Western Canada seen as a sign of the good demand.
Driedger expected continued strong demand from domestic processors and the export sector would temper the weakness coming from the outside markets to some extent.
From a technical standpoint, the January contract neared the psychological $500 per tonne level during the week, but could be headed toward a break below support at $496 per ton, according to Ron Frost of Frost Forecast Consulting in Calgary.
Bearish macroeconomic trends will keep canola pointed lower as well, he said, with the futures expected to trade in a new range between $466 and $496 once that support is broken.
While both Frost and Driedger said further losses were likely, they also allowed for the possibility of occasional corrective bounces, which would likely be seen as good selling opportunities.
