The ICE Futures canola market was mixed during the week ended May 21, with the bias lower in the most active new-crop months as commercial traders turn their attention away from the volatile old-crop July contract.
July canola futures saw both limit-up and limit-down moves during the week, as traders on both sides of the market took turns trying to book profits and roll into the less chaotic deferred months. Most domestic crushers and line companies have stopped offering basis contracts relative to the July contract, with both old- and new-crop bids generally trading off of the November futures.
With over a month to go before the July contract goes off the board officially, there’s plenty of time for more fireworks in the futures. However, whether the volatility there spills into the new-crop months or not remains to be seen.
For new-crop futures the focus is squarely on weather conditions and production prospects. Prairie farmers have made good seeding progress, with general ideas that actual canola area will top earlier expectations. However, much of that crop was seeded into very dry ground, leaving production at the mercy of timely rains through the growing season.
Precipitation was in the forecasts for many dry regions over the Victoria Day long weekend, but while the moisture may help with germination it’s unlikely to seriously improve the dry subsoil levels.
In the U.S., the weather is also at the forefront as both corn and soybeans are being planted at a quicker-than-normal pace across the Midwest. Winter wheat yields were looking solid in the southern Plains, while spring wheat to the north saw enough moisture to weigh on the futures — although more will be needed, just as in the Canadian Prairies.
Corn was a leader of the U.S. futures during the week, seeing a modest recovery after dropping off of multi-year highs the previous week. China was in the market on a number of days, making million-tonne-plus purchases of corn for delivery in the new crop year. Dryness in Brazil was also cutting into the crop prospects there, which should keep end-users looking to the U.S.
While North American growing conditions should be the primary market driver over the next few months, activity in outside financial and energy markets could also provide some direction.
The Canadian dollar traded above 83 U.S. cents during the week, hitting its strongest level in six years before running into some resistance. That rising currency cuts into crush margins and may limit some export interest, although it’s worth noting that the last time canola prices were anywhere close to current levels, the loonie was trading at even money with the U.S. dollar.