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ICE weekly outlook: Dry weather keeping canola from more downside

CNS Canada –– A lack of rain in Western Canada may be the only thing keeping canola futures prices from dropping much further than they have already.

The dominant November contract was above $525 a tonne in late June, but has since fallen to the $490 mark as of Wednesday.

Global trade disruptions and a massive North American oilseed crop are weighing on futures prices but the need to keep a weather premium in the market has kept canola in the game, at least for now.

“There are some definitely some dry areas that are getting a lot of attention,” said Keith Ferley of RBC Dominion Securities.

Another analyst in Winnipeg says many farmers are legitimately concerned. Of course, it’s still tough to say what this could mean for farmers’ bottom lines.

“The weather premium may mute the downside, but canola is notoriously difficult to estimate yields,” said Jonathon Driedger of FarmLink Marketing.

Meantime, funds continue to add to short positions as farmers hang onto supplies until better prices come along.

Recent weakness in the Canadian dollar has also help prop up the market, as the loonie continues to have trouble holding above 76 U.S. cents.

The U.S. trade dispute with China continues to suck a lot of the attention from traders as the question shifts from not “when” the dispute will be over to “if.”

Some traders had hoped China would start buying a lot more canola than it has previously, due to the tariff on U.S. beans, but Driedger isn’t sure that will be the case.

“Keep in mind they already have been our largest customer; they’ve always been a big buyer,” he said. “Canada isn’t the only solution either. We’re a drop in the bucket of the gap they need to fill.”

Re-taking the $500 per tonne mark isn’t out of the question, he said, but he’s not bullish on the market either.

“We’re kind of in that window when you’re getting closer to the backside than front,” he said.

— Dave Sims writes for Commodity News Service Canada, a Glacier FarmMedia company specializing in grain and commodity market reporting. Follow CNS Canada at @CNSCanada on Twitter.

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