CNS Canada — ICE Futures Canada canola contracts recorded substantial gains during the week ended Wednesday, on speculation the Trump administration would alter biofuel regulations in the U.S., which sparked a flurry of buying.
So far the specifics of any changes have yet to be announced, but already some in the industry believe the U.S. will offer incentives for increased use of U.S.-produced biofuel while slashing foreign imports.
“We need some clarification about what’s going on with the mandate,” said Keith Ferley of RBC Dominion Securities in Winnipeg,. “Are they changing things? Are they changing the credits? That’s the focus at the moment.”
Soybean and soyoil futures on the Chicago Board of Trade rocketed up sharply on Tuesday, just hours before U.S. President Donald Trump addressed Congress.
The canola market went along for the ride, but Ferley warns it could also come down just as easily.
“So is this going to cut off Canadian canola movement into the States, or is it going to increase it? I don’t know the answer to that,” he said.
Tuesday’s rally also gave some pep to crush margins, which was a welcome change from recent behaviour, said Ferley. While the surge in soyoil futures helped improve crush margins somewhat, they were still below recent highs, he added.
“It looks like it could be extremely volatile going forward as the market waits to see what the Trump administration’s going to do,” he said.
Another factor to watch is the direction of the Canadian dollar. There is speculation the U.S. Federal Reserve is preparing to adjust the U.S. interest rate, which would have a significant effect on the loonie.
“The Canadian dollar is backpedaling a bit as U.S. rates look to go above Canadian rates at the bank level,” he said.
— Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.