ICE Futures canola contracts moved steadily lower during the week ended Nov. 24, falling to their weakest levels in two months and nearing the bottom edge of their well-established sideways trading range.
With numerous supportive factors underneath the market, a case could easily be made that canola is due for a correction higher. What could trigger that bounce remains to be seen.
From a chart standpoint, the January contract may have lost nearly $80 per tonne over the past two weeks, but it remains well within the $800-$900 per tonne range where it has been stuck since the end of June. Prices have fallen below major moving averages, with oversold price signals indicating the selloff could be running its course.
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Fundamentally, domestic crush margins remain historically wide, which should be keeping canola well supported. However, the local crush only accounts for about half of the canola demand, and there are still cheaper alternatives for oilseeds internationally.
Canadian crushers have processed about three million tonnes of canola during the 2022-23 crop year to date, roughly on par with the previous year. Meanwhile, exports are slowly moving ahead of the year-ago pace as available supplies are much more prevalent compared to the 2021-22 drought year.
About 2.4 million tonnes of canola have been exported as of Nov. 20, about 250,000 tonnes ahead of the previous year’s pace, according to Canadian Grain Commission data.
Australia’s canola was reportedly going for about US$100 per tonne cheaper than Canadian-sourced supplies into Asian markets for the time being, but canola should look more attractive to global buyers after the latest downturn.
However, uncertainty over Chinese demand is a wild card in the background. The country has the potential to be a large export customer for Canadian canola, but increasing COVID-19 cases and strict lockdown measures in the country have raised questions about its future buying interest.
While the Black Sea shipping deal remains in place for now, the ongoing conflict in Ukraine also continues to overhang all markets.
The Thanksgiving holiday in the U.S. on Nov. 24 led to choppy activity in Chicago grains and oilseeds, with participants moving to the sidelines and squaring positions.
Attention in soybeans and corn will now be focused on production prospects in South America heading into the New Year. Conditions in Brazil remain relatively favourable for crop development, but hot and dry weather in Argentina is already cutting into yield estimates in the early stages of the growing season.
