ICE weekly outlook: Profit-taking to pressure canola

Market appearing overdone

ICE March 2021 canola with 20-, 50- and 100-day moving averages. (Barchart)

MarketsFarm — ICE Futures canola contracts climbed to record highs during the week ended Wednesday as concerns over tightening old-crop supplies provided support.

However, the market was looking overdone to the upside and profit-taking came forward to put some pressure on values.

“The traders that are still long are playing the game of forcing the shorts to pay up,” said Ken Ball of PI Financial in Winnipeg.

Speculators on the long side were sitting on huge profits, he said, and were now unloading some of those positions while there was still enough volume in the market.

The managed money net long position in canola was sitting at about 45,000 contracts as of Feb. 16, according to the latest commitment of traders (CoT) report from the U.S. Commodity Futures Trading Commission.

A move to multi-year highs in Chicago Board of Trade (CBOT) soyoil added to the strength in canola, although Ball expected that soyoil may be nearing its peak.

“We could come down a fair bit in canola, unless they really pull up the U.S. markets… there’s just way too much money on the table,” he said.

While the underlying supportive fundamentals of tightening old-crop supplies should keep canola underpinned, Ball noted any strength will be relative as the market had done its job of rationing demand.

Exports continue to move at a solid pace, but anything moving now was sold months ago and new business is backing away.

Meanwhile, domestic crushers will likely keep buying as much canola as they can, keeping the cash market well supported, but Ball expected they may have to reduce capacity as it becomes harder to source supplies.

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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