Canola contracts on the ICE Futures U.S. platform tested major support levels during the week ended July 19, but managed to hold relatively steady overall to finish the week with slight gains.
The November canola contract hit a multi-year contract low of C$437 per tonne on July 5, but has managed to hold above the $440 to $441 level ever since, and finished the week right around its 20-day moving average near $450. Friday’s rally was constructive from a chart standpoint, but a sustained break below chart support could set the stage for a retreat to the $410 level from a technical standpoint.
The large old crop supply situation, with an estimated 3.9 million tonnes likely to be carried over at the end of the 2018-19 crop year, is another bearish influence.
Agriculture and Agri-Food Canada released updated supply/demand tables late Friday afternoon, lowering their canola yield and production estimates for 2019. The government agency is now forecasting an 18.6 million tonne crop, which would be well below the 20.3 million tonnes grown in 2018.
While there is still plenty of uncertainty in Saskatchewan, crop conditions have shown some improvement overall, with production prospects looking decent in Manitoba and Alberta
MarketsFarm analyst Bruce Burnett pegs Canadian canola production this year at 17.85 million tonnes, noting that many regions will need to stay frost free well into September in order to mitigate additional quality and yield losses.
However, the reduced production still isn’t enough to account for the lack of movement on the Chinese trade front. That means even the smaller production should still result in record large ending stocks of 3.975 million tonnes by July 2020, according to Agriculture Canada data.
In the United States, corn and soybeans will trade off of the day-to-day weather forecasts over the next few weeks, with uncertainty over seeded acres keeping some caution in both markets.
The general consensus is that corn acres in the country came in below the current official number while soybeans plantings were larger. The U.S. Department of Agriculture won’t release the results of a resurvey until August 12.
In the meantime, U.S. crop development is also running behind normal this year, increasing the risk of frost damage down the road.
‘Corn is king,’ and what happens in that market should dictate what happens elsewhere. Most analysts are bullish on corn, but are waiting on that August USDA report before sticking their necks out too far.
For wheat, any rallies in corn would be supportive, but U.S. wheat is still facing stiff international competition while the advancing U.S. winter wheat harvest should be keeping a lid on the market at least in the short-term.