What happens with soybeans in the U.S. and South America could be the catalyst that breaks canola out of its range
ICE Futures Canada canola contracts held rangebound during the week ended Oct. 18, with November contract keeping well within the roughly $15 range it’s found itself in for most of the past month.
While a few fields are still remaining, the bulk of the canola harvest is finished for the year. The crop is generally expected to have ended up record large, although just how large remains to be seen. At the same time, demand also remains solid, with domestic crushers running at nearly 90 per cent capacity and talk of fresh export demand from China circulating the market during the week.
Overall, canola will likely need a push from outside to break out of its recent range. On the one hand, any attempts at moving higher are bound to be met with good producer selling and a backing away of end-user bids, as both sides are aware of the large supplies that will need to be moved this year. On the other hand, farmers can easily shut the doors on their bins if prices move too low. Bargain hunting will also pick up on any moves lower, as canola remains attractively priced compared to other oilseeds.
With that being the case, what happens with soybeans in the U.S. and South America could be the catalyst that breaks canola out of its nearly month-long range. Soybeans at the Chicago Board of Trade also remain rangebound overall, although the market managed to move higher during the week, with soyoil seeing the largest gains of the soy complex. Tightening U.S. soyoil supplies despite a better-than-expected domestic crush pace accounted for some of the strength in that market.
U.S. farmers are still in the midst of harvesting this year’s crop, and yield reports have generally been topping expectations. The improving yield prospects are potentially bearish for the futures, but export demand has also picked up recently, with China believed to have made some large purchases under the radar while the U.S. was in shutdown mode. The resumption of the USDA’s reporting should confirm that business. Meanwhile, South American farmers are in the early stages of planting their soybean crop, which will make weather conditions there an important factor in the futures.
For the grains, U.S. wheat futures saw some wide price swings during the week, but eventually turned higher as worries over freezing temperatures in Argentina provided the catalyst for a bounce in all three U.S. wheat futures contracts.
Weather issues delaying winter wheat seedings in the Black Sea region have also underpinned the U.S. futures recently, although actual acreage reports from Russia and Ukraine have varied widely.
Corn futures in the U.S. moved off of three-year lows during the week, but held rangebound overall. While the cheaper prices have brought in some bargain hunting, the advancing U.S. harvest and generally improving yield prospects may see corn retest its nearby lows sooner rather than later. The contract low of US$4.32 per bushel is seen as nearby support in the December contract, with resistance holding at US$4.50.