ICE weekly outlook: $1,000 canola not a guarantee

ICE November 2021 canola (candlesticks) with 10-, 20-, 50- and 100-day moving averages (yellow, green, purple and black lines). (Barchart)

MarketsFarm — Any idea of canola hitting $1,000 per tonne in the near future is not the sure thing some people may have thought it was, according to Errol Anderson, an analyst with ProMarket Communications in Calgary.

“New-crop futures might take a run at $1,000 per tonne, but in the same breath the November contract sees support at $850,” Anderson said, indicating the next level of support down is $770 per tonne.

“In my career, I’m not sure if I have really seen it that wide,” he added, noting volatility was very likely to remain entrenched in canola futures through the rest of summer.

While severe drought across most of the Canadian Prairies has dashed all hope of meeting or exceeding a harvest of 20 million tonnes of canola, that alone won’t be enough to assure sustained price increases in the weeks and months to come.

Also, the very tight supply situation is not a guarantee as well, according to Anderson.

“Palm oil is starting to crack. Soyoil is starting to crack. Canola has to respect the global [vegetable] oil market,” he said, pointing to increases supplies on the world stage.

Regardless of how tight canola supplies are, prices will need to follow the path laid out by palm oil and especially by Chicago soyoil, which canola follows faithfully.

He believes soyoil could retreat from the 66.22 U.S. cents/lb. level, at which the August contract closed Wednesday, down to 50 cents/lb. within the next few months.

Added to that, Anderson said “the Canadian canola engine” of production and demand will shrink, especially with exports projected to pull back in 2021-22.

That would put further pressure on prices — as would buyers seeking alternatives to canola, should it become too expensive.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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