The ICE Futures canola market saw some choppy activity during the week ended Dec. 11, consolidating just below recently hit multi-year highs as investors took profits and adjusted positions ahead of the seasonal slowdown.
Canola has been in a steady uptrend since July, and underlying fundamentals remain supportive with plenty more room to the upside. However, traders like to say “the bull needs to be fed every day” — and new sustenance may not come until the new year.
On the supply side, Canada’s 2020-21 crop was the smallest in five years, at 18.6 million tonnes, according to Statistics Canada data. Confirmation of that smaller crop in the Dec. 3 production report sent the January canola contract as high as $599 per tonne — the strongest level for a front-month contract since 2013. Meanwhile, end-user demand is at a record pace, with exports to date of 4.5 million tonnes, up 1.3 million on the year. Those two factors — a smaller crop and large demand — mean something will need to happen to ration demand going forward.
From a chart standpoint, the next level of resistance after a break above the psychological $600-per- tonne level would come in at around $620, with $650 another target after that.
However, canola doesn’t trade in a vacuum. While higher prices are the implied method to keep stocks from getting too tight, any strength in canola will be relative to competing oilseeds.
Soybeans are the key crop to watch on that front, with the U.S. also looking at a tighter supply situation for that crop.
The U.S. Department of Agriculture released updated supply/demand estimates on Dec. 10, lowering its forecast for 2020-21 U.S. soybean ending stocks to 175 million bushels. That compares with the 523 million bushels carried over from the previous crop year.
Dryness concerns in South America have contributed to the tightening supply scenario for soybeans, with Brazil even buying some U.S. beans to meet its own domestic needs after overselling earlier in the year.
Both Brazil and Argentina have seen some much-needed moisture recently, but more will be needed to make the crops going forward.
In grains, corn held steady during the week, while wheat saw some large price swings. U.S. wheat futures hit their lowest level in two months at one point before bouncing sharply higher.
USDA lowered its projections for both world and U.S. wheat ending stocks, which should be a supportive influence going forward. Production uncertainty in Russia also underpinned wheat, with cold temperatures threatening the crop there.
However, Australia is looking at its best wheat crop in years, while Canada is also sitting on good wheat supplies after a decent 2020 growing season.