Expect supply outlook to keep canola futures well tethered

ICE Futures Canada canola contracts moved higher for most of the week ended July 20, before running into resistance and ending with a softer tone on Friday. A recovery in the Chicago soy complex provided some underlying support for the Canadian oilseed, but canola remains expensive from a chart perspective.

World trade continues to keep some uncertainty in the markets, as back-and-forth tariff threats between the U.S. and China threaten to disrupt global grain movement. How canola factors in remains to be seen, but updated supply/demand tables released by Agriculture and Agri-Food Canada released during the week predict an increase in canola exports in 2018-19.

The government agency is forecasting canola exports in 2018-19 of 11.5 million tonnes, which would be up from an earlier estimate of 11 million and the 10.8-million-tonne forecast for 2017-18.

However, with only two weeks left in the current crop year and canola exports to date of 9.9 million tonnes, the market may be hard pressed to live up to that forecast. As a result, ending stocks can be expected to be revised higher from the already large 2.7-million-tonne AAFC forecast. With another big crop on the way, the ample supply situation should act as an anchor on canola.

Weather worries remain a possible supportive factor in the background, but overall production prospects remain relatively favourable for the most part.

In the U.S., weather is also being followed closely at this time, as both soybeans and corn are developing rapidly. However, while a weather premium would be normal in the middle of July, this year the weather is being literally trumped by trade risk discount.

However, while the ongoing trade dispute with China may be cutting into demand from that major buyer, the U.S. is finding some demand from non-traditional customers for its cheaper grains and oilseeds.

If the U.S. trade disputes find some resolution before the midterm elections in the fall, the balance sheets for both soybeans and corn could tighten considerably.

For wheat, the U.S. winter wheat harvest is in its final stages, while spring wheat condition ratings are well ahead of last year’s. While those two factors should be weighing on values, all three U.S. wheat futures markets moved higher during the week, with chart-based positioning behind some of the strength.

Production issues elsewhere in the world, including in Russia, Australia and Europe, were also being followed closely.