ICE Futures Canada canola futures saw some mixed activity during the week ended July 12, but were lower overall by July 12 as relatively favourable crop prospects and a jump in the Canadian dollar weighed on values.
The November canola contract finished the week at $530.80 which is right at the low end of a long-term range that’s been in place since January. A drop below $530 would set the stage for a test of next support at $520, with a move below $500 a possibility if that level is breached. On the other side, the highs seen in early June near $575 remain the top end of the range, but it will take a weather scare or other outside influence to see values move back that way any time soon.
With canola fields generally in the midst of flowering, new-crop production is still very much up in the air. That makes weather over the next few weeks very important. The consensus in the market so far is that the canola crops are ‘looking good overall,’ but some areas could use more moisture and others remain on the wet side. If those localized problem areas expand to be more widespread, there is the potential for risk premiums to build in canola. Any disease or insect issues that materialize will also be followed closely.
But, as always, canola does not trade in a vacuum, and activity in U.S. soybeans and the broader international financial markets will also have much to say on where things go from here.
Soybeans saw some choppiness of their own during the week, but managed to hold on to some gains in the most active new-crop contracts by July 12. Concerns that hot and dry Midwestern weather conditions would cut into the yield potential of the U.S. crop caused values to rally off of nearby lows, but as the forecasts moderated so did the futures. Soyoil, which is more closely linked to canola, actually finished lower on the week.
The USDA released updated supply-demand data on July 11, forecasting that U.S. soybean stocks will be considerably larger at the end of the 2013-14 crop year compared to the current tight year. World supplies are also believed to be rising, with the USDA predicting a 20 per cent increase in global stocks in 2014.
U.S. corn supplies are also expected to be replenished this year, with the USDA predicting a carry-out for 2013-14 of 1.959 billion bushels. That compares with the expected ending stocks this year of only 729 million bushels.
U.S. wheat futures were also higher during the week, with more Chinese demand behind some of the strength. China is now forecast to import 8.5 million tonnes of wheat in the 2013-14 marketing year that started June 1 for wheat. That Chinese demand is up by about five million tonnes from the previous year, as the country had problems with its own crop and also needs more grain for feeding livestock.
Global wheat supplies, are also now expected to tighten over the year, due in part to that rising demand from China. World ending stocks are now forecast at 172.38 million tonnes for 2013-14, which is down about nine million tonnes from the USDA’s June estimate.
The long, docile wheat and durum futures at ICE Futures Canada were untraded once again during the week, but they did see some price adjustments as values were adjusted by the exchange. Milling wheat prices were revised lower and durum higher, with the spread between the two commodities widening to reflect the realities of the cash market. October milling wheat at ICE Canada was quoted at $271 per tonne on July 12, which compares with where it had been for the previous four months at $294. Durum, was quoted at $302 per tonne after the July 12 close, well above the $294.90 posted since late April. Neither milling wheat or durum has any actual open interest at present.