Canola contracts on the ICE Futures Canada platform moved lower during the week ended Dec. 19, hitting their weakest levels in a month as a sell-off in the Chicago soy complex spilled over to weigh on prices.
Speculative long liquidation ahead of the New Year was behind some of the weakness, and could lead to more softness going forward, according to a broker.
The canola market will likely continue to be drawn down with soybeans, even though the canola fundamentals are somewhat more supportive, said Ken Ball of PI Financial in Winnipeg.
The fact that soymeal was showing more weakness compared to soyoil would help limit the losses in canola, as the commodity has a higher oil content than soybeans.
From a technical standpoint, the nearby canola contracts could move down toward chart support at the $540-$550 per tonne level, said Ball, adding that "it might be able to hold that level, even with a sharper drop in beans."
However, choppy activity heading into the New Year could lead to some volatility in the futures.
"Money moves around at this time of year for reasons that have very little to do with the market itself," said Ball, adding that "if they start taking profits or exiting the markets, you can see some very erratic activity."
Commercial demand underneath the market should provide some support for canola, limiting the downside potential, according to Ball.
The need to keep a bit of a weather premium in the oilseed markets, given the fact that the South American crop is still far away from being harvested, was also expected to provide support.
— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.