ICE Futures canola contracts climbed to never-before-seen levels during the last week of February, but the lofty heights proved short lived, with heavy selling pressure when profit-taking finally came forward to weigh on the market.
The front-month March contract became a bit of a casino contract, soaring above $800 per tonne as anyone who was still short the market was being forced to pay up to exit positions. The rally in March dragged the other months up as well, with the much-more-active May contract hitting its own high of $782.90 per tonne during the week.
Prior to the past month, the previous high in canola had been $744 per tonne, set in 2008. So while canola may have been nearly $50 off its highs in the span of two days, it remains historically strong by all metrics.
Speculators are heavily on the long side in canola, and should be sitting on huge profits. Whether they book all of those profits now or ride the waves of the market, in hopes of seeing another leg higher, remains to be seen.
The suddenness of the retreat came as a bit of shock after the months-long steady uptrend — but the underlying fundamentals remain supportive.
Agriculture and Agri-Food Canada is currently forecasting ending stocks of only 700,000 tonnes for both the current 2020-21 marketing year and 2021-22. With exports and the domestic crush running at a record pace, an expected stocks-to-use ratio of only three per cent is a flashing bullish signal.
Actual canola business off of the West Coast has yet to show any signs of slowing down due to the high prices, but traders say new business is backing away.
In the U.S., soybeans hit their best levels in seven years during the week before running into a profit-taking correction of their own. Corn held just below its own multi-year highs, hit earlier in the month, while wheat also held reasonably strong from a historical perspective.
Strength in both soybeans and corn lately has been tied to weather uncertainty in South America.
Brazilian farmers are in the middle of harvesting their soybean crop, which should replenish world supplies and alleviate concerns over tight U.S. stocks. Heavy harvest-delaying rains were being talked up as a supportive influence, despite expectations that total production will still be large.
Any delays harvesting soybeans in Brazil also raise concerns over the country’s corn crop, as the bulk of the corn is seeded as a second crop into soybean stubble. With the soy harvest running late, corn is also going in the ground late which could cut into production prospects.