North American grain and oilseed futures were in free-fall mode during the week ended June 17, with November canola losing nearly $100 per tonne in the span of five trading sessions. Soybeans, corn and wheat futures in the U.S. also found themselves in a tailspin as speculative long liquidation built on itself in the grains and oilseeds.
Shifting Midwestern weather forecasts calling for more rain and moderate temperatures provided the catalyst for the downturn, with broad strength in the U.S. dollar also bearish for the North American grains and oilseeds. That strength in the U.S. dollar saw the Canadian dollar weaken, but the softer loonie wasn’t enough to slow the declines in canola.
In the background during the week was also talk of China imposing measures to reduce the country’s exposure to international commodity markets, which would conceivably cut into some of the country’s demand for imports. Rumours of possible changes to U.S. biodiesel policy were another bearish influence on agricultural markets, although confirmation was lacking.
While grains and oilseeds were due for a correction from a chart standpoint, the underlying fundamentals remain supportive and the latest downturn could be seen as a buying opportunity going forward.
Old-crop canola supplies are still tight, demand is still strong and the Prairies will be in need of much more moisture through the growing season.
Canola is also still relatively cheap compared to the product values, despite the historically strong price levels, which implies end-users have room to pay up more and still be quite profitable.
Crush margins did take a hit during the week, but at about $130 per tonne over the November futures, those margins are still more than double the levels seen at the same time a year ago.
From a technical standpoint, the November canola contract fell below the 20-day moving average around $728 per tonne during the week but managed to find some support at the 100-day average of $655 and correct off of that level. A test below the 100-day average would be bearish from a chart standpoint and set the stage for additional speculative selling pressure. However, if the market manages to hold, a retest to the upside is a good possibility.
Export movement did show some signs of slowing down during the week, with the 53,900 tonnes of canola shipped during the week ended June 13 the lowest weekly total in nearly two years. However, total exports through 44 weeks of the crop year of 9.7 million tonnes are up by 1.1 million tonnes from the previous year, and there’s likely just not that much left in the cupboards to move.
That only highlights the fact that the market will be banking on a good 2021 crop to restock the shelves and keep things moving in the new marketing year. More speculative shakeouts are possible, but at the end of the day, weather and the size of the crops will be the key market-moving factors over the coming weeks.