ICE Futures canola was struggling in mid-September as a general selloff in commodity futures, as well as equities, pulled down prices. The nearby November contract fell to $725.30 per tonne on Sept. 21, as it busted through its support level of $730.
There were a number of other factors in canola’s slide, one being harvest progress across the Prairies. Combining of the oilseed is more than halfway finished.
Another factor was weakness in the Chicago soy complex, also caught up in the selloff. Sharp losses in soybeans, soymeal and especially soyoil put a lot of pressure on canola. Declines in European rapeseed and Malaysian palm oil further contributed to canola’s setback.
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In the market selloff, crude oil was pretty much the only commodity not taking those relentless hard hits. Rather, during September, crude oil — West Texas Intermediate in particular — has been on the rise. Speculation over the last several weeks became fixated on crude rising to US$100 per barrel, but oil’s rise seems to have stalled out in the low $90s.
As one analyst explained, crude’s trajectory was dependent on the actions of the U.S. Federal Reserve on Sept. 20. That day the Fed opted to freeze its benchmark rates, but stressed there could be future rate hikes should inflation not be better contained. In the days following the Fed’s announcement, WTI was still in the low $90s, but the path to $100/barrel seems to be one not taken, for at least the time being.
Interestingly, another analyst said the connection between crude oil and vegetable oils has essentially been severed. That divergence has seen veg oils not follow crude upward, but instead retreat in the face of that selloff.
Without higher prices for Chicago soyoil, ICE canola would have an extremely difficult time finding traction. With December and January contracts for soyoil below 60 U.S. cents per pound, any chance of prices for the Canadian oilseed rising toward $750/tonne are pretty much non-existent.
The market will now wait and see if canola happens to shatter support at $700/tonne – or will it stay rangebound between there and $730?
Solace could come from the demand for canola. Regardless of the quantity gleaned off Prairie fields, projections have pointed to good demand for exports and domestic use. That would lead to tight ending stocks, which will underpin any gains canola might make in coming months.
In light of the two model-based production reports issued by Statistics Canada, the market in coming weeks will look toward StatCan’s survey-based report in December. That report is expected to be a more accurate picture of what transpired in this year’s harvest.
