The canola market continues to be locked in sideways trade, even as a bearish U.S. Department of Agriculture report temporarily rocked the oilseed world.
USDA on Aug. 10 released its monthly supply-and-demand report, in which it raised its estimate for this year’s U.S. soybean harvest to 4.4 billion bushels, a figure nearly on par with last year’s record crop. The prediction was significantly above what most analysts had predicted heading into the report and traders were soon selling en masse. Ideas took hold that heat stress to this year’s crop might not be as bad as initially feared.
Another factor that unnerved the market was how this year’s weather in the U.S. Plains could impact the harvest. Growers in the eastern portion of the Plains were dealing with excess amounts of water, while many growers in the western part are battling drought-like conditions. It all makes for a potent mix of unpredictability moving forward.
The report’s release briefly drew in large funds, which had been sitting idle in the canola market for much of August. The front-month November contract managed to temporarily smash through resistance at $513 per tonne.
However, the buying cooled off before it could hit $520 and things calmed down on Friday in light trade.
Attention will likely shift back to weather and soy as the next major report, this time from Statistics Canada, isn’t due until the end of the month.
One factor working in canola’s favour is the Canadian dollar, which had sunk below the psychologically important 80 U.S. cents mark. That has helped make the commodity more attractive on the international market.
Out on the Prairies, growers also continue to bring in product from last year. It comes as the trade faces tough questions over how much rationing will need to happen in the coming months to ensure the country doesn’t run out of product.
The bearish USDA report also led to a tumultuous time for the soybean market. The dominant November contract sank to the US$9.40 mark on Aug. 10. Some analysts threw cold water on the report, saying they thought the projection was too high given the scorching weather the crop saw this summer. The damage could have been worse but demand for U.S. soybeans is high, with big orders from Mexico coming in and solid interest from China. Weather conditions are also still too dry in much of the U.S. Corn Belt.
The corn market also fell after USDA projected U.S. yields at 165.9 bushels an acre, along with higher U.S. stockpiles than expected. The front-month December contract moved from a high last week of US$3.87 a bushel to under US$3.75. An outbreak of bird flu in the Philippines was also bearish as it forced a cull of 200,000 head of poultry, which weighed on livestock feed.
Wheat futures were also dragged down by the report, which pegged spring wheat in 2017-18 at a higher-than-expected 402 million bushels. Some farmers in the western portion of the U.S. Midwest have begun to bale their wheat for hay. There are also expectations consumer baking costs could rise due to the shortage of high-protein wheat.