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Weather-related soybean rally supportive for ICE canola futures

Trump’s threat of a trade war with Mexico could be bearish

ICE Futures canola contracts climbed higher during the week ended May 31, as a rally in the Chicago Board of Trade soy complex provided spillover support.

The slow pace of spring seeding in the United States catalyzed the rally in Chicago soybean and corn markets, with heavy rains keeping Midwestern farmers off of their fields. Insurance deadlines have already passed for corn in many states, but the market kept pointing higher in an attempt to encourage late planting.

U.S. corn seeding is typically complete by the end of May, but farmers still had more than a third of intended acres to go this year. Soybeans still have more time, but it’s getting late and yield losses are likely. Only 29 per cent of intended U.S. soybean acres were planted as the last week of May, well behind the 66 per cent average.

A move by the U.S. government to lift restrictions on higher blends of ethanol was also supportive for corn, and corn futures hit their best levels since 2016.

Wheat futures in the U.S. also got a boost from the wet weather, as the excessive moisture delaying seeding for corn and beans raises quality concerns for wheat as it nears maturity. Condition ratings were starting to deteriorate across the U.S. Plains, with the chance of harvest delays adding to the buying interest in the futures.

Meanwhile, dryness in the Black Sea region is bringing in extra support for wheat, as production estimates out of the region were revised lower.

Speculators were busy covering short positions in soybeans and wheat, and actually moved to a net long position in corn. The speculative activity is an indicator that fund traders are now betting on higher prices down the road.

While a number of factors were pulling markets higher during the week, underlying fundamentals for canola remain relatively bearish. There were no positive developments on the ongoing trade dispute with China during the week, which means old-crop supplies should remain rather large.

A new trade concern also materialized, as U.S. President Donald Trump turned his sights on Mexico. Just as the new North American Free Trade Agreement was nearing completion, Trump announced plans to impose tariffs on Mexico over immigration concerns.

U.S. grains and oilseeds are a prime candidate for retaliation, which would weigh on U.S. prices. While Canada could conceivably pick up some slack, the extent of the impact of this new trade war on grains and oilseeds remains to be seen.

Canadian markets will also be keeping an eye on the Prairie weather situation, with dryness and frost in some areas as possible price-moving factors going forward.

About the author

Columnist

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

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