MarketsFarm — As Malaysian palm oil futures tumbled to 20-year lows during the week of Sept. 26, they have put a lot of pressure on canola prices, analyst Errol Anderson of ProMarket Communications in Calgary said.
However, he said, the Canadian dollar has been the backstop that kept the oilseed from falling with palm oil.
“Palm oil has been in an absolute dive this week,” Anderson said, noting it lost 17 per cent of its value over five days.
“Even though we are seeing a bit of a trainwreck in Asia… I don’t see a lot of a downside in canola,” he added.
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Also taking a hard fall has been the loonie, losing more than five cents. As worldwide economic turmoil abounds, the U.S. dollar has been a safe haven. While palm oil hit 20-year lows, the greenback soared to 20-year highs, putting a great deal of pressure on global currencies.
The Canadian dollar on Tuesday closed at 72.85 U.S. cents, bottoming out at a multi-year low. That weaker loonie makes canola much more attractive to international buyers.
While the looming recession threatens the world economy and the greenback is seen as a safe place, both will trigger something that would bring canola down: crude oil prices. Anderson said crude oil has fallen to US$77 per barrel and is likely to push lower despite market chatter of tight supplies.
“It’s the demand that’s weakening crude and in commodity markets, demand is king, not supply,” he explained, adding the question becomes not ‘if’ canola breaks, but ‘when?’
Crude oil greatly influences the vegetable oil complex, of which canola is part of. Shifts in crude will often be mirrored among those veg oils.
Anderson also pointed to one saving grace for canola: crush margins, which remain astronomically high despite pulling back somewhat.
“If the crusher does need canola, there’s room to bid up for it,” he said.
— Glen Hallick reports for MarketsFarm from Winnipeg.
