Glacier FarmMedia – As the calendar flipped to July, so did canola’s fortunes at the Intercontinental Exchange (ICE) during the week ended July 3.
While the November contract fell below C$600 per tonne on June 26 for the first time since late February, it has since gained more than C$50 to close at C$652.70 on July 3. Earlier that day, the contract reached C$659.70, its highest level since June 7.
Jerry Klassen of Resilient Commodity Analysis in Winnipeg noted that canola’s recent rise largely had to do with Chicago soyoil. Over the past week, August soyoil gained almost five U.S. cents per pound at 48.64, a price unseen since April.
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He called it a “bean oil scare rally”, which was triggered after Indonesia said it would consider 100 to 200 per cent tariffs on Chinese goods. This could lead China to retaliate in kind towards Indonesian palm oil and perhaps buy more from Malaysia.
“You have a real uncertainty here over the tariffs from some larger vegetable oil exporters and that’s caused the soyoil to have a pretty good rally here over the last few days,” Klassen said, adding that spec funds covered some of their shorts for soyoil due to the tensions.
Managed money shorts for canola totaled more than 139,000 contracts at the end of May and soyoil’s surge created new short-covering and commercial demand for the Canadian oilseed, according to Klassen.
“Last week, we saw a pretty good source talk of new export business for Canadian canola. Then this week after (Canada Day), we had the tariff scare driving the soyoil and then we have fund buying for the soyoil and the canola,” he said.
Klassen mentioned that weather conditions were “optimal” for Western Canadian canola, but soybeans in the U.S. “need a little bit more heat.”
Due to the potential for high canola yields this summer, Klassen believes November canola will face resistance at C$660/tonne. He put the chances of the contract exceeding that level at “50-50.”
“There’s good hedge pressure that’s kind of limiting the upside,” Klassen explained. “We have a big crop coming. This is a temporary vegetable oil scare in regards to trade and tariff structures … The farmers are just pouring (old and new crop canola) out here. We have big selling coming up from farmers.”
