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Ungainly supplies, lack of demand dragging on canola

Assorted drama in the U.S. added a cautious tone to trade

ICE Futures canola contracts trended lower in the front months during the week ended Feb. 15, moving below chart support in the process as a number of factors conspired to weigh on values.

The nearby March contract fell below the psychological $480-per-tonne level on Feb. 14, setting the stage for a test of the nearby $475-per-tonne low. Fund traders are reportedly sitting on sizable net short positions, and the bearish chart signals kept them on the sell side for the time being. If the $475 level is broken, the next downside target comes in at around $465 per tonne.

In addition to bearish charts, large supplies and a lack of significant end-user demand contributed to the downtrend in canola. Canadian Grain Commission data for the week ended Feb. 10 showed solid exports and domestic crusher demand, but traders are concerned that sales to China are starting to dry up. While there have been no official statements, the simmering diplomatic dispute between the two countries is anecdotally limiting some buying interest.

Meanwhile, plenty of attention in North American grains and oilseed markets was on trade talks underway between the U.S. and China that took place in Beijing. No real progress was made during the latest round of talks, but with a March 1 deadline looming for some kind of agreement, negotiations will continue in Washington, D.C. the week of Feb. 18.

The ongoing border wall drama in the U.S. also lent an air of caution in grain markets. Another government shutdown was eventually averted by a bipartisan agreement on the budget and the declaration of a national emergency by President Donald Trump to pay for a wall.

Soybean futures at the Chicago Board of Trade chopped around during the week as optimism on trade talks ebbed and flowed. Any developments on the trade front could spark a larger move in soybeans, but some attention also remains focused on the South American harvest.

Hot and dry conditions during the growing season cut into yield prospects in parts of Brazil, while Argentina dealt with excessive moisture. The U.S. Department of Agriculture currently estimates Brazil’s soybean crop at 117 million tonnes, while Argentina’s production is pegged at 55 million.

Private and government estimates out of the two major South American soybean exporters are slightly lower on average, but any reductions there won’t change the fact that world oilseed supplies remain large overall.

Corn futures held rangebound during the week, as that market continues to look for some fresh news to push it out of its sideways trading range.

U.S. wheat futures were mixed, with gains in Minneapolis spring wheat and declines in the Chicago and Kansas City winter wheat contracts as the spreads between the three contracts saw some adjustment.

U.S. wheat is said to be pencilling in a bit better on the global market these days, but Russia is still not showing any signs of slowing down its own export program.

About the author

Columnist

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

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