After several days of gains, ICE Futures canola took an inevitable double-digit step back on Oct. 21. Despite the extremely tight supply situation in Canada, canola was bound to take a breather, as profit-taking was thought to have driven down prices on that Thursday.
However, it’s unlikely the Canadian oilseed will continue to push lower. Those scarce supplies were further exacerbated by a poor harvest of about 12.8 million tonnes this year and resulted in 2021-22 ending stocks crashing to 500,000 tonnes, according to Statistics Canada.
There could be a slight improvement to those dire crop numbers when Dec. 3 rolls around and the federal agency issues its final production report of the calendar year. Just the same, the survey-collected data from thousands of farmers could result in numbers lower than what we have seen already.
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Now 11 weeks into the 2021-22 crop year, canola exports of around 1.17 million tonnes have dropped almost 54 per cent from a year ago. There’s little canola to be had and price rationing has been doing its part to fend off interested buyers. Under those conditions, any significant drop in canola prices in the near future remains unlikely.
Unlikely, that is, as long as prices for other edible oils also stay strong. As often stated, canola follows Chicago soyoil and where it goes, canola goes. Soyoil has been on the upswing as well, but took a big step back on Oct. 21, also very likely due to profit-taking. Both European rapeseed and Malaysian palm oil have seen new contract highs recently, which have spilled over to push canola higher.
Global demand for oilseeds will foster strong prices across the board. Should that falter for whatever reason, only then could we see canola take a tumble.
Even then the growing likelihood for another tough year in 2022 could dash expectations. As the Prairies endured a very tough drought, topsoil and more importantly subsoil are pining for anything to boost their water content.
Canola doesn’t like dry conditions, and despite strong prices the difficulty in growing a crop in not much more than dust could turn farmers’ attention to other crops. In turn, such an event will only heighten the scarcity of canola.
FUTURES | Fundamentals support a continued climb following a setback last week
