MarketsFarm — Despite surpassing the $900 per tonne mark at times during the week ended Wednesday, ICE Futures’ January canola contract never settled above that psychological level.
Rising prices prior to the weekend later gave away to selling pressure after the weekend due to a correction in vegetable oil prices, according to broker Ken Ball of PI Financial in Winnipeg. But despite falling as much as $30 per tonne, canola still showed relative strength.
“The product side fell off about $40. That again is canola showing…it’s undervalued and it shouldn’t go down as easily as when the markets go down,” Ball said. “(Canola) should see some upside potential as long as vegetable oil prices stay reasonably steady.”
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When the January canola contract surged past $900 on Friday, it was the first time the contract reached that mark since July 29. That day was also the last time the price settled above that level. Despite a recent inability to move above $900 and stay there, Ball believes that time will eventually come.
“I think the odds are still high that canola can get through and percolate higher,” he said. “It may not have any sharp upward action, but it should be able to percolate higher as long as vegetable oil can stay firm.”
Meanwhile, crush margins continue to hit record levels. Canola positions up to May 2023 are seeing margins surpass $200, according to ICE. The November/December stood at $271.58. While they are at a very high level, Ball does not think crush margins will stay this high for long.
“These are very, very extreme levels,” he said. “I don’t think we can see crush margins stay there because what high crush margins mean is that canola is relatively attractive to an end user buyer, both a crusher and a buyer for export. At those relatively cheap levels (for canola), we’re going to have too much demand.
“I don’t think canola can stay this relatively cheap because we don’t have the supply to meet the kind of demand that might be generated,” Ball added.
He also expects canola to undergo a turnaround very soon.
“We’re not necessarily expecting a huge upside in canola, but certainly the bias is firmer overall for the next little while,” he said. “Assuming vegetable oil prices are going to peak and fall back at some point, but so far they’re staying firm.”
— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.
