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Canola rides out turbulence in world financial markets

A lower loonie lent support to Canadian canola demand

It was a turbulent week for world financial markets but canola shrugged off much of the volatility and held firm, thanks in large part to weakness in the Canadian dollar.

In fact, the market even showed a bit of bullishness as the front-month March contract broke through the psychologically important $500-per-tonne mark during the week ended Feb. 9.

Both the Dow Jones Industrial Average and TSX suffered massive losses on Feb. 5 before staging rallies of their own. The next few days saw more of the same and it was enough to force large funds onto the sidelines.

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The stock market volatility didn’t seem to affect canola directly. As one analyst explained, canola didn’t climb with the markets over the past few months, so it didn’t really have anything to give back. However, the turmoil did keep volumes low most of the week.

Meantime, the Canadian dollar fell below the 80 U.S.-cents mark which made canola more attractive to domestic crushers and foreign buyers.

The U.S. Department of Agriculture’s monthly supply-and-demand report cast a momentary damper on canola after its release on Thursday morning. The agency pegged U.S. soybean ending stocks at a whopping 530 million bushels, 60 million more than expected. USDA also raised its estimate for the size of the Brazilian crop.

However, speculators and bargain-hunters stepped in after the canola market dropped and quickly bought back the losses.

Dry weather in Argentina also lent support to values. Some rain began falling in the country late last week but ideas took hold that it wouldn’t be enough to turn things around for the dried-out soil conditions.

In the U.S., Chicago wheat, corn and soybean futures all posted gains on the week.

Soybean prices took strength from dry weather in Argentina. The front-month March contract rose roughly 14 cents as a result. As well, USDA said ending stocks in the U.S. would be around 60 million bushels higher than previously forecast.

The corn market continues to slowly churn higher with rising demand for livestock feed and ethanol. For much of late 2017 and early 2018, the market seemed stuck on the US$3.50-a-bushel mark. However, over the past month, the front-month March contract has worked its way over the US$3.60 mark. USDA also lowered its projection for world ending stocks of corn, compared to the previous report.

Chicago wheat futures climbed nine cents during the week, taking strength from concerns over dry conditions in the U.S. Plains. Short-covering was also a feature along with some chart-based buying.

About the author

Columnist

Dave Sims

Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Dave has a deep background in the radio industry and is a graduate of the University of Winnipeg. He lives in Winnipeg with his wife and two beautiful children. His hobbies include reading, podcasting and following the Atlanta Braves.

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