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Crush margins, currency, charts show support for canola futures

South American soybean production could bring pressure

Canola values were well supported during the first full trading week of 2020 and have the potential to rally $10-$15 higher.

Technical charts have projected canola values reaching $490-$495 per tonne. Some growers have throttled back on selling their product to wait and see if this price range will be realized. Barring sharp sell-offs in comparable vegetable oil markets, canola could stay strongly under-pinned for the foreseeable future.

Continually strong crush margins were supportive of canola values. Crush margins closed out 2019 at over $120 above the January contract. They have since settled back down by about $5, but still remain almost twice as high when compared to the same time last year.

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Relative weakness in the Canadian dollar also underpinned canola. The Canadian dollar has flagged due to comparable strength in U.S. currency. The Canadian dollar on Jan. 9 was at 76.46 U.S. cents, about half a cent lower than the week prior.

Vegetable oil markets could be pressured by record-high soybean production expected in Brazil. The country’s agriculture service has predicted the soybean crop will total just over 122 million tonnes, a 1.3-million-tonne increase compared to last month’s estimate. If realized, it would be the largest soybean crop in the country’s history.

A rally of $10-$15 for canola could be triggered by fresh news regarding trade relations between Canada and China, but that doesn’t appear to be on the horizon. However, China’s vice-premier will be in Washington to sign Phase 1 of the U.S./China trade deal, which will likely inject some positivity into markets.

Financial markets were also troubled by increased tensions in the Middle East. On Jan. 3, a U.S. airstrike killed Iranian general Qasem Soleimani. In retaliation, Iran launched missiles at an airbase in Iraq that housed U.S. soldiers. Also, on Jan. 7, a Ukrainian airliner carrying 176 people – and 63 Canadians – crashed shortly after taking off in Tehran. Multiple sources indicate the plane was likely shot down by an Iranian missile in error.

As of Jan. 10, the two countries appeared to have backed away from an all-out war. The U.S. House of Representatives also voted Jan. 9 to limit President Trump’s ability to use military action against Iran without congressional approval.

About the author

Glacier MarketsFarm

Marlo Glass

Marlo Glass writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.

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