ICE weekly outlook: Canola still climbing, watching beans

MarketsFarm — The ICE Futures canola market has trended higher for the past five months and showed no signs of slowing down in mid-November, with prices hitting fresh contract highs on a number of days.

January canola hit a session high of $571.40 per tonne, and settled Wednesday at $569.40.

Aside from a brief blip during contract expiry in 2017, the nearby canola contract has not traded above $550 per tonne for any extended time since 2013.

With a move above that key level, the next upside target is $600 per tonne, Ken Ball of PI Financial in Winnipeg said. However, he noted, canola was largely a follower in the current market and continued strength in the Chicago Board of Trade soy complex would be needed to keep the bullish uptrend in place.

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Solid end-user demand and tightening stocks projections were providing some independent support for canola, but “right now it’s all (soy)beans,” according to Ball.

He said canola prices were lagging the soy complex dramatically, with crush margins widening by about $40 per tonne or more over the past month. Current crush margin levels come in at about $125 per tonne above the futures, according to ICE Futures data.

Ball estimated canola futures would need to rise by about $20-$30 per tonne to come in line with the soy complex, but noted the Canadian oilseed is unlikely to catch up before soybeans inevitably turn lower.

The soy market is looking a little overheated, according to Ball. Once that runs out, it will also spell the end of the canola rally.

Weather concerns in South America and solid Chinese demand for soybeans from the U.S. have been primary drivers in the rally. Ball expected movement on those fronts would dictate where the futures went from here.

“It will be a volatile situation, but for now the funds are long,” said Ball.

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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