CNS Canada — ICE Futures Canada canola futures dropped sharply on Wednesday as the market reacted to a surprisingly bearish U.S. Department of Agriculture report and resulting losses in soybeans.
While the nearby technical bias has turned bearish, the latest weakness may also serve to uncover some fresh export demand for canola.
“It’s a reminder that the world is flush with soybeans,” said analyst Mike Jubinville of ProFarmer Canada on USDA’s upward revisions to its production estimates. With soybeans looking bearish, he said it would be difficult for canola to see any strength of its own.
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With Wednesday’s sharp declines, Jubinville said the November canola chart now “has all the markings of a ‘head and shoulder top.'” From a purely technical standpoint, he said the contract could be headed down toward $420 per tonne.
However, given the underlying fundamentals, he said such a significant decline was unlikely, with the nearby $480 per tonne level expected to provide some support.
The last time November canola traded at $480 per tonne was in mid-June, and at that time China came in as a major buyer and took prices higher, said Jubinville.
“We could still go down lower, but there is good support right around here.”
Jubinville was doubtful that the latest economic uncertainty in China, stemming from its currency devaluation, would extend into food demand, noting “they will still buy canola if they see the opportunity.”
The recent weakness should also cause farmer selling to back off. “I think there will be lots of time over the new-crop marketing year to sell at better levels,” Jubinville said, adding that basis levels were still looking relatively strong, “which tells me that the commercials want canola.”
— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Follow CNS at @CNSCanada on Twitter.
