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Canola values’ climb likely to continue

Crush margins are around the widest levels seen in the past year

ICE Futures canola continued its months-long rally during the first week of 2021, hitting fresh contract highs to trade at levels not seen in more than seven years. While a profit-taking correction is always possible, the trend appears intact for the time being.

The most active March contract had faced some resistance at the psychological $650-per-tonne mark during the week, but eventually broke above that barrier as bullish fundamentals proved more than enough to counter any overbought chart signals.

While canola futures may be at some very high price levels, the oilseed is still quite attractively priced compared to soybeans. Crush margins of about $130 per tonne above the futures are at some of their widest levels of the past year. Those wide margins imply processors have room to pay up for canola seed while still making sizable profits.

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Export demand is running at a record pace, with 5.2 million tonnes shipped through the first five months of the crop year, according to Canadian Grain Commission data. That compares with 3.7 million at the same point a year ago. Domestic disappearance, at 4.6 million tonnes, is down slightly on the year, but still solid overall.

Line companies have commitments on the books and are paying up in the countryside to secure deliveries. The worry is that supplies will be very tight by the end of the marketing year.

Canola doesn’t operate in a vacuum, with concerns over tightening world soybean stocks adding to the oilseed’s own supportive fundamental story.

The U.S. Department of Agriculture is to release its updated supply/demand estimates on Jan. 12, and trade expectations call for a cut to the already tight soybean carry-out projection. Downward revisions to South American production estimates are also expected.

South America is in the middle of its growing season, with anecdotal estimates out of Brazil and Argentina seeing near daily downward revisions due to dry weather conditions.

March soybean futures neared the US$14-per-bushel mark during the week, with many analysts calling for US$15 beans before the rally is done.

Chicago corn futures were flirting with the US$5-per-bushel mark during the week — a level not seen in more than six years. South America’s weather issues were also a driver in that market, with the grain seeing an added boost from export restrictions out of Argentina. Given the dryness and tightening domestic supplies, Argentina will restrict corn exports through to the end of February.

Activity in wheat was a bit more mixed during the first week of 2021, with profit-taking on recent highs a feature.

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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