ICE weekly outlook: Canola still married to soybeans

CNS Canada –– ICE Futures Canada canola futures were mostly higher during the week ended Wednesday, with some support coming from gains in the Chicago soy complex.

Speculative-based short covering, after the January contract moved above the 30-day moving average at about $411 per tonne on Wednesday, was also bullish, according to analysts.

The January contract was also approaching resistance of $420 per tonne, which could limit further gains in the market.

The direction of canola futures will still be determined by where Chicago Board of Trade (CBOT) soybean futures move, as the two markets aren’t divorcing, according to Ken Ball of PI Financial in Winnipeg.

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If supplies were looking extremely tight for canola, they would have the potential to separate from the soybean market. But it’s generally believed the canola crop will end up larger than Statistics Canada’s most recent estimate of 14.1 million tonnes, Ball said.

“Supplies will be somewhat tight, but not as tight as people had been expecting.”

There could still be some upside in the canola market if soybeans continue to rally, especially since the Canadian contracts have lagged the U.S. market’s recent gains, Ball said.

How much longer the rally in the U.S. will last is hard to predict. Much of the recent strength was driven by gains in CBOT soymeal, due to tight supplies and strong demand of the commodity.

Concerns about slow harvest progress in the U.S. were also a supportive factor for North American oilseed markets, though better weather is expected to help move things along in coming days.

U.S. soybean production is also still expected to be record-large, which will cap any advances going forward.

U.S. markets will start to turn their attention to South American soybean crop prospects once the U.S. harvest is nearing completion. So far, there have been some worries about dry conditions harming planting in Brazil — but it’s still early and there are no real problems to be concerned about at this point, according to Ball.

— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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