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ICE canola futures acting independently

New federal estimates paint a picture of tighter ending stocks

It can happen. Canola was showing a good amount of independent strength this week, shrugging off the ebbs and flows of other edible oils.

The main driver behind this rarely seen independence is tight canola ending stocks, which have instilled price rationing in ICE canola futures.

As one trader explained, commercials are so desperate to grab whatever canola remains in farmers’ bins, the cash price was at $17.25 per bushel — exceeding the market price.

Compounding the situation were the latest supply-and-demand estimates from Agriculture and Agri-Food Canada (AAFC) on Feb. 17. The department lowered canola ending stocks to 700,000 tonnes, down from its one-million-tonne forecast in January. Also, AAFC projected ending stocks for 2021-22 at 700,000 tonnes; this comes despite a 7.6 per cent boost in canola production at 20.15 million tonnes.

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Holding the line on canola exports, AAFC kept its January estimate of 10.4 million tonnes. Meanwhile, domestic usage was bumped up to 9.85 million tonnes.

The trader suggested Canada’s canola exports are slowing more than they usually do at this time of year, as prices are beginning to climb to levels where buyers aren’t as interested in the oilseed.

It’s unfortunate that an accurate reading for those exports won’t be known until April. That’s because the Canadian Grain Commission is two months behind in reporting exports to specific countries. The commission’s weekly grain movement reports will have to suffice in the meantime.

It’s expected that once the March canola contract has ceased trading, the market will cool off a little. On Feb. 18, March peaked a little over $777 per tonne — blasting past the previous record high of $744 set back in 2008 — before settling back at the close.

Activity could ramp up again when the May contract gets close to its expiry, as traders look to roll into the July contract.

When that comes, the weight of the South American soybean harvest should be well felt. How much that affects canola prices remains to be seen.

Until then, canola traders have new preliminary estimates to consider from the U.S. Department of Agriculture for soybean and corn acres in the United States. Corn area is thought to be going up 1.3 per cent from 2020, to 92 million acres. Soybeans could jump 8.3 per cent, to 90 million acres. As with the South American bean harvest, the markets will have to sit tight in figuring out what that could mean.

Ideas that canola ending stocks are expected to be very tight this marketing year, and the next, should mean prices remain decently supported.

About the author

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Glen Hallick - MarketsFarm

Glen Hallick writes for MarketsFarm specializing in grain and commodity market reporting. He previously reported for Postmedia newspapers in southern Manitoba and the province’s Interlake region.

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