Commentary on canola futures may be starting to sound like a broken record, but at least it keeps skipping on a good part of the song.
While canola did some profit-taking correction during the second week of March, the general uptrend remained intact and fresh highs were hit in many months during the week. The familiar bullish tune is that old-crop canola supplies are tight, demand is strong and the market needs to ration some of that buying interest or risk running out of canola before the next harvest.
While more profit-taking is possible, underlying demand remains and any losses are still being seen as buying opportunities by end-users.
The outside influences of the solid U.S. soybean market, weather uncertainty in South America and multi-year highs in Malaysian palm oil should also provide underlying support for canola, with no real bearish threats on the immediate horizon.
However, just as a skipping record can be jolted out of its rut by a sudden thump to the side of the player, the eventual catalyst that changes the upward trajectory of canola may come as a surprise.
Barring such an unknown catalyst, the nearby attention in North American futures markets is likely to shift from the tight old-crop supply situation to spring seeding and the prospects for the new crop.
The monthly supply/demand report from the U.S. Department of Agriculture, released on March 9, was largely a non-event as far as futures markets were concerned, as the government agency generally left its numbers unchanged for old-crop U.S. soybeans, corn and wheat.
USDA will release its first official survey-based acreage estimates for the season at the end of March, while Statistics Canada’s numbers won’t be released until April 27. Quarterly stocks data from USDA will also be out at the end of March.
U.S. soybean and corn acres are both expected to be up on the year, with strong prices expected to see farmers seed land that was unplanted in 2020.
In Canada, high canola prices have raised expectations for a ‘sea of yellow’ across the Prairies. However, most other crops also pencil out very favourably, and actual acreage shifts may not end up that pronounced.
More important than acres in the long run will be weather conditions through the growing season. Canada will need a big canola crop to make up for the tight carry-over, but a large portion of the Prairies will enter the spring on the dry side this year. ‘Rain makes grain,’ as the saying goes, and with new-crop contracting opportunities where they are, a healthy dose of precipitation would likely come as music to many producers’ ears.