ICE weekly outlook: Canola feeling the energy

Canola riding on fuels' bullish momentum

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

MarketsFarm — ICE Futures canola contracts moved steadily higher over the week ended Wednesday, hitting the top-end of a three month trading range.

While tight Canadian supplies due to a Prairie drought have underpinned the market for some time, the latest strength and any future direction may be more closely tied to movement in energy markets.

“There seems to be a mindset shift occurring here, and it’s making canola become a pure energy play,” analyst Mike Jubinville of MarketsFarm said.

With crude oil, natural gas and other energy markets seeing strength around the world “I think canola is getting caught up in the process,” Jubinville said, adding “the energy issues are providing the underlying force behind the market right now.

“As long as the bullish momentum is being maintained in the energy sector, it’s hard to envision canola falling back in any sustained fashion.”

Rapeseed grown in Europe is a major feedstock for biodiesel production there, with rapeseed futures trading at record high levels. Jubinville expected activity in European rapeseed would be a key feature to watch in the Canadian canola market.

“If we have a change in momentum in the energy sector, that will extinguish this current rally,” he added.

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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