ICE Futures canola contracts continued their month-long climb during the week ended Sept. 18, hitting their strongest levels in two years.
The November contract moved above $530 per tonne during the week, marking the first time the front-month contract had settled above that point since June 2018. The contract has risen by nearly $50 per tonne over the past four weeks, only posting three down days since Aug. 20.
Cold overnight temperatures and widespread frosts were one supportive influence, although freezing temperatures at this time of year are not that out of the ordinary.
More than anything specific to the Canadian market, Chicago Board of Trade soybeans also hit two-year highs during the week and the rally there was behind much of the spillover gains in canola. Good export demand provided the catalyst for the strength in beans, with China making new purchases on a near-daily basis.
While Canada’s trade issues with China are still up in the air, the country has shown an insatiable demand for oilseeds over the past few months. Initially buying up Brazilian beans earlier in 2020, China has turned its attention to the United States. China bought so many Brazilian soybeans this year that the South American country has been forced to book some imports of its own recently, in order to shore up domestic supplies.
There’s an argument to be made that both canola and soybeans may be looking toppy from a technical standpoint, with some indicators pointing to oversold territory. Speculators have put on large long positions in both commodities and a profit-taking sell-off is inevitable. If it’s not enough to completely stop the uptrend in canola, the harvest should at least slow gains to some extent.
However, the timing of a downturn remains to be seen. Until then, a rally at harvest time should provide some good scale-up selling opportunities.
Statistics Canada released updated production estimates on Sept. 14, only adjusting its forecast for the 2020 crop slightly, at just under 19.4 million tonnes. While many industry participants had been anticipating a 20-million-tonne-plus crop earlier in the growing season, hot and dry weather in August cut into production prospects.
Provincial crop reports have indicated actual yields may come in below the 41.6 bushels per acre forecast by Statistics Canada, with Saskatchewan Agriculture recently estimating yields at 35 bu./ac. and Manitoba citing reports of “disappointing” yields from some producers.
Any challenges with the last half of the harvest or confirmation of yield losses would provide more fuel to the bullish fire in the market. The U.S. harvest will also be getting going in earnest soon, keeping some market attention there as well.