Benefits from early-June rains have turned to doubts
New-crop canola contracts that bottomed out at the daily limit of $30 per tonne on June 17 have since made a dramatic turnaround — not so much because of what else has been going on in the markets, but rather because of the weather.
As with earlier this spring, hot and dry weather has again descended over the Prairies. Any benefits of rains earlier in June have largely dried up. Manitoba and Saskatchewan weekly crop reports highlighted the dryness as crops in both provinces were becoming stressed. The question of how much more heat and dryness canola — as well as other crops — can tolerate has been increasingly prevalent in the market.
Looking further to the south, North Dakota has reached the perilous situation in which no amount of rain can now save many crops. Reports have noted North Dakota has dried up so much that it’s worse than during the ‘Dirty Thirties.’
There’s no certainty as to what will happen across the Prairies. Rain could come, although forecasts going into the week of June 28 pointed toward little or no precipitation for most of the region.
Being in a weather market, new-crop canola prices began to push higher and higher. As the old-crop July contract continued to pull back, gains were made in the positions for 2021-22 crop year.
For the week of June 21, the July contract rose $72 per tonne, January was up $40.90 and March climbed $67.60. This included a trifecta of limit-up gains on June 23 in July, November and January positions.
Granted, on June 24 values eased off a little for the new-crop contracts as some profit-taking ensued. Still, circumstances remained rather bright for futures heading into the final month of the 2020-21 crop year.
The degree of that brightness will be determined on June 29, when Statistics Canada is scheduled to issue its next acreage report. These latest estimates will help confirm how much more canola was seeded this spring and point toward any significant increase in ending stocks.
Then on June 30, the U.S. Department of Agriculture releases acreage and grain stocks reports, which will further add to the mix.
Given Canada Day is the next day, there could be a tremendous amount of volatility in the market — and it’s likely July 2 could see light volumes of trading as U.S. markets head into the July 4 long weekend. Light volumes are always open to major swings one way or the other.
The canola market could be in for a wild ride as we move into July.