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Canola Drops On Fund Profit-Taking

ICE Futures Canada canola contracts dropped sharply during the week ended June 24, hitting their lowest levels in over a month as a broad-based fund sell-off weighed on prices. An unexpectedly bearish Statistics Canada acreage report also accounted for some of the selling, although most participants were downplaying the large StatsCan acreage number, given the timing of the survey.

When StatsCan conducted its acreage survey in late May/early June, farmers indicated plans to seed a record 19.8 million acres to the oilseed. That’s well above the 16.8 million planted in 2010, and even above the March forecast of 19.2 million. The flooding in western Manitoba and southeastern Saskatchewan likely thwarted some of those

intentions. However, anecdotal reports of producers doing what they could to get something in the ground may be a sign that the StatsCan numbers may not be as far off from the actual seedings as they may have been otherwise.

With the ground too wet to drive a tractor through in large areas of Manitoba and Saskatchewan this spring, many producers turned to the skies in an effort to at least get something in before seeding deadlines. Canola is about the only crop grown in Western Canada suited to being seeded from the air, and crop dusters were said to be very busy ahead of seeding deadlines. I spoke with one operation which was forced to turn away many requests for aerial seeding this year due to the large demand and only small window of opportunity.

Results from aerial seeding do vary, and in some cases could be a case of throwing money away in a misguided attempt to salvage the season. However, at least one farmer who seeded by air in the past said the higher costs associated with the process were made up by the fact that he actually ended up with a crop to market. He said the viability of canola seeded from a plane (or helicopter in some cases) depends on moisture conditions over the growing season.

Much of the selling in canola during the past week had very little to do with the acreage situation in Western Canada, or lack thereof. Rather, the setback was largely the result of fund profit-taking and long liquidation. The sharp rise and fall of the futures markets seen in 2008 is still fresh in the minds of those fund traders, and while the general uptrend is still thought to be in place for grains and oilseeds, the speculators are also much quicker to take profits to prevent being caught up in a selloff.

From a technical standpoint, the November canola contract finds itself in a broad range generally between $550 and $600 per tonne. The contract moved very close to testing the bottom end of that range during the past week, but the upside has not been seen since early June.

U.S. FUTURES WEAKEN

Looking at the U.S. futures, soybeans, corn and wheat were all sharply weaker during the week, with fund selling a key factor behind the downturn. A lack of any real weather scares for the developing corn and soybean crops, along with a relatively smooth winter wheat harvest in the southern Plains, was also behind some of the selling.

On the heels of the StatsCan acreage report, the U.S. Department of Agriculture releases its own seeding estimates on June 30 and positioning ahead of that data could lead to some choppiness in the U.S. futures. USDA will also put out updated supply/ demand tables at that time, and the direction soybeans and corn take going forward could depend on how those numbers are taken. Once that news is digested, weather will be the key again moving through the summer months, as tight old-crop corn and soybean stocks will need to be replenished.

Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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