ICE Futures Canada canola contracts were lower in most months during the week ended Nov. 4, with the continued chaos in global financial markets front and centre in the day-to-day canola trade as well.
So far canola has managed to hold relatively steady given the increasing uncertainty in the world economy, but those outside factors did hit home in at least one instance during the week.
There were no treats to be found in the canola market on Oct. 31, as Halloween brought a trick for the North American agricultural markets: MF Global, a major brokerage and clearing participant at ICE Futures Canada and the Chicago Board of Trade (CBOT), filed for bankruptcy. The failure of MF Global was tied to the company s bets on the European debt situation.
The MF Global trading platform was utilized by a number of local and commercial participants in the canola market, and the bankruptcy forced those traders to either liquidate their positions or look for other providers to transfer to. Traders estimated that 20 per cent or more of the normal volumes in canola were impacted by the bankruptcy.
Concerns are mounting in some segments of the trade that the volatility in the markets will eventually result in a sharp drop lower in prices when the dust clears. While the U.S. economy isn t so hot itself, financial uncertainty typically leads to strength in the U.S. currency, as it is still seen as a safe haven. While any resulting weakness in the Canadian dollar would be supportive for canola, the greater trends would be bearish overall as skittish buyers back away from commodities.
The Canadian dollar jumped around, but was down by over two cents relative to its U.S. counterpart by the time the dust settled at the end of the week. A two-cent decline in the currency means the January canola contract, which ended virtually unchanged at C$530.50, would be about US$10 cheaper than it was a week ago for anyone pricing in the U.S. currency.
However, the C$500-per-tonne level is edging closer and closer and some analysts predict a sub-$500 price sooner rather than later.
Any weakness would largely be a result of those outside market forces, with solid demand still an underlying feature in canola.
Tight global vegetable oil supplies are expected to keep the vegetable oilseed side of the market very strong. As a result, canola, with its higher oil content, should at least outperform soybeans over the next few months.
Crushers continue to make good profits processing canola, with margins around the C$100-per-tonne level.
Western barley futures were untraded and unchanged during the week.
Ebbs and flows
In the U.S., wheat and soybeans were both down, while corn was narrowly mixed on the week.
The U.S. markets were also trading off the ebbs and flows in the financial markets, with some caution shown ahead of a key U.S. Department of Agriculture crop report on Nov. 9.
If there are any surprises in the updated USDA production numbers, soybeans or corn could both jump one way or the other. However, barring a surprise there, and also allowing for the uncertainty in outside financial markets, attention in soybeans and corn is starting to turn to conditions with the South American crop. Both soybeans and corn are expected to see increases in production on the year.
Demand from China also has the potential to move corn and soybeans, as traders will be eagerly watching for any confirmation of sales to the country.
For wheat, the increased export competition from Black Sea-origin supplies will limit any upside potential in the U.S. market. However, the drought concerns in the southern U.S. Plains show no signs of subsiding, which should keep some support in the wheat market.
Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.
For three-times-daily market reports from Commodity News Service Canada, visit ICE Futures Canada updates at www.manitobacooperator.ca.