Canola futures on ICE Futures rose over $600 during the week ended Dec. 17, but are expected to pull back slightly as market participants enter “holiday mode” in the coming days.
Canola prices started the week at $596.30 per tonne, with the January contract gaining $2.70 per tonne on the day. By mid-week, canola closed at $602.90 per tonne, up by nearly $10 when compared to the week prior.
Market participants expected a significant rise in canola prices following Statistics Canada’s report on principal field crops, released early in December. The report detailed remarkably tight carry-out stocks, which some have described as lower than is feasible within the industry. Canola prices have risen in order to discourage some demand and add a bit of cushion to carry-out stocks.
Crush margins will also have to be lowered in order to kill off some demand. In recent weeks, crush margins have dropped by about $50. They’re expected to go lower in coming weeks.
Gains in soybean futures have also contributed to canola’s rise, as nearby contracts closed at over US$12 per bushel at mid-week. Soybean strength has been fuelled by concerns of dry weather in key growing regions of South America, although growing conditions aren’t dry enough to cause significant concerns regarding crop yields just yet. Additionally, strikes at Argentina’s shipping ports have been slowing down exports out of the Rosario terminal. Shipping workers and oilseed crushers are striking to demand danger pay during the COVID-19 pandemic.
Although canola typically follows soybean activity closely, canola’s gains outpaced its U.S. counterparts this week. That’s part of the reason why canola is expected to pull back slightly in the weeks to come, along with quieter trade activity around the holiday season. Market participants also anticipate a round of profit-taking ahead of the new year.
The Canadian dollar gained strength throughout the week, keeping a lid on further gains for canola. The loonie was around 78.5 U.S. cents for most of the week, which is near year-long highs.
The Canadian currency was stronger due to a dip in comparable international currencies. The U.S. dollar is at its lowest point in two years. Strength in crude oil values has also been supportive of the loonie. Crude oil prices hit their highest levels in nearly 10 months, following reports that U.S. lawmakers are finalizing a stimulus deal that may boost demand. Anticipation of a broad rollout of a COVID-19 vaccine also supported crude oil markets.