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Soybeans’ strength doesn’t sustain canola’s rally

Large corn supplies keep cash prices under pressure

ICE Futures Canada canola contracts hit their best levels in two months during the week ended Feb. 16, but ran out of gas and retreated from those highs despite continued strength in Chicago soybeans.

After rallying above the psychological $500-per-tonne mark on Monday (Feb. 12), March canola spent the next few days making attempts at continuing that rally — but failed each time.

The lack of follow-through buying came despite ongoing gains in Chicago soybeans, which kept moving higher all week on the back of weather concerns in Argentina. Heat and dryness in the South American country was especially supportive for soymeal, as Argentina is a major exporter of the livestock feed.

Soymeal futures climbed to their highest levels in 1-1/2 years on a continuous chart. Meanwhile, soyoil fell to its lowest levels in eight months, as traders adjusted the spreads between the two commodities. The strong demand from the livestock sector for meal is pointing to a possible oversupply of soyoil. Monthly U.S. crushing data released during the week showed soyoil supplies in the country climbing 13 per cent in January, to 1.73 billion lbs.

Canola’s oil content is considerably higher than beans, and typically takes more direction from activity in vegetable oil markets than meal. That accounts for the relative weakness in canola compared to soybeans.

However, even with the weakness in soyoil, canola crush margins still improved by about $10 per tonne over the course of the week, hitting $80 per tonne above the futures. Those profitable margins should be keeping the domestic crushers running close to full capacity, with spot pricing opportunities at least a possibility if the futures don’t improve.

The Canadian dollar strengthened over the course of the week, trading at just under 80 U.S. cents by Friday.

Grain futures saw some choppy activity during the week, with the end result being a relatively flat showing for both corn and wheat.

Wheat traders continue to keep a close eye on weather conditions across the U.S. Plains, where a lack of moisture is cutting into yield prospects for the winter crop currently in hibernation.

Corn is seeing some good export demand lately, with the U.S. selling nearly two million tonnes in the latest weekly report. However, supplies in the countryside are also pretty large, which is keeping prices from climbing much higher as any uptick brings in more farmer selling.

About the author

Columnist

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

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