The ICE Futures canola market was hard pressed to see room to the upside as it headed into the end of 2023, with relatively comfortable supplies and generally bearish technical signals overhanging the market.
The March contract has lost roughly $50 per tonne since the beginning of December, trading at levels not seen since June. While a corrective bounce is always possible, that would require an outside catalyst. Most signals point lower for the oilseed as the calendar flips to 2024.
For starters, Statistics Canada raised its call on the size of the crop to 18.3 million tonnes, up by nearly one million from the model-based estimate of September and only slightly behind what was grown the previous year.
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Domestic disappearance is running ahead of the year-ago level, at nearly four million tonnes through 19 weeks, according to Canadian Grain Commission data. However, there’s a finite upper limit for the crush, which means the export pace will need to pick up or the supply situation could turn burdensome.
Canada has only exported 2.25 million tonnes of canola through 19 weeks, running 28 per cent behind the 2022-23 pace. Canada is reportedly facing increased competition from Australia in some markets, which contributes to ideas that canola prices may need to go lower to generate the required demand.
Before Statistics Canada raised its production forecast, the market analysis division of Agriculture and Agri-Food Canada was forecasting rather tight canola ending stocks for 2023-24 of only one million tonnes. If realized, that would be the tightest carryout in a decade and supportive for prices.
However, the latest numbers and slow exports to date could leave Canada with over two million tonnes. The carryout last topped two million tonnes in July 2020, when canola was trading just below $500 per tonne.
The outlook from a chart standpoint is not much better, with all the major moving averages pointed lower. Speculative fund traders continue to hold a record-large net short position.
The March canola contract fell to six-month lows as of Dec. 15, nearing the psychological $650 per tonne level. If that is breached, the contract low around $625 would provide the next support, with a move below $600 per tonne not out of the question.
With all that bearish baggage, anyone looking for a move higher in canola will need to take direction from outside markets. Movement in the Chicago soy complex is one possible driver. Soyoil futures have found themselves in a similar downward slide as canola, but soybeans themselves were holding firmer. Questions remain over the state of the South American crops, while the U.S. had solid export demand.
Wheat futures in the U.S. have also benefited from good demand recently, although that buying interest appeared to be drying up. Improving moisture conditions in the Southern Plains also limited the upside.
