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Canola finds independent strength against soybeans

The switch from Winnipeg to New York weighed on volumes

Canola futures held up surprisingly well during the week ended August 10 as a heat wave in the Canadian Prairies overpowered the bearish effects of a U.S. Department of Agriculture report that predicted a record soybean crop in the U.S.

ICE’s front-month November canola contract closed on Friday, Aug. 10 at $504.90 a tonne, over $10 higher than the Aug. 3 close of $494.

Much of the strength can be attributed to the sizzling temperatures that broiled many parts of Western Canada over the weekend. In some parts of the Prairies the mercury surged over 35 C.

Canola has also shown a surprising amount of independent strength as its cousins to the south, soybeans and soyoil, stagger under the combined weights of the tariff battle between the U.S. and China and Friday’s USDA supply-and-demand report.

The report pegged soybean yields at a larger-than-expected 51.6 bushels an acre, with a production tally of 4.6 billion bushels. That compares to last year’s total of 4.4 billion.

Canola was already feeling some pressure from ideas it was overpriced, before Friday’s report came out. It momentarily threatened to break below the psychologically important $500-per-tonne mark, but managed to hold firm.

Weakness in the Canadian dollar was also a factor as the currency found itself well under the 77 U.S. cents mark before Friday’s close. Crush margins remain under pressure and some large buyers have stepped back from the market, awaiting new-crop supplies when they know prices will be cheaper.

The market witnessed pitifully low volumes during the week. The weaker number of trades initially started July 30, when contracts on the ICE Futures board ceased trading in Winnipeg and began in New York. Some trading sites had technical problems with the change and it took a day or two before they could get set up on the new system. But the bigger factor was likely tied to the more expensive margin traders had to pay for in the New York-based setup. One trader said it was much more expensive than the old system based in Winnipeg. As a result, volumes have been slow to rise in recent days, although they were showing signs of life Friday.

In the U.S., soybeans dropped sharply during the week due to the bearish effects of the USDA supply-and-demand report. The November soybean contract ended the week at a price of US$8.6175 a bushel, down nearly 40 cents from Aug. 3. Global soybean stocks are expected to hit 105.9 million tonnes, which compares to 95.6 million tonnes last season. The reason for the swelling stocks is attributed to the ongoing tariff battle between China and the U.S.

Corn futures also softened over the week, albeit not to the same extent as soybeans. The December corn contract fell roughly 13 cents, to US$3.7175 a bushel. According to USDA, the 2018-19 harvest will be around 14.6 billion bushels, which was slightly higher than what most analysts were expecting. Stockpiles also came in at 1.6 billion bushels, which compares to last month’s forecast of 1.5 billion.

Chicago wheat futures lost ground in sympathy with corn and soybeans. The front-month September contract lost roughly 10 cents per bushel to close on Friday at US$5.4675 a bushel. USDA actually lowered the estimate for world wheat supplies and U.S. stockpiles, which should have helped support prices. But the ongoing uncertainty in the global trade situation and bearish tone to the futures weighed down the market.

About the author

Columnist

Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Dave has a deep background in the radio industry and is a graduate of the University of Winnipeg. He lives in Winnipeg with his wife and two beautiful children. His hobbies include reading, podcasting and following the Atlanta Braves.

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