Rather than getting any St. Patrick’s Day luck, ICE canola futures took more of a hit from the Ides of March.
Profit-taking was the main feature for the week ending March 18, which drove a knife into prices that had recently hit record highs. After trading above $800 per tonne to start the week, May canola suffered the biggest loss of the old-crop months, dropping more than $50 from its highs. The July contract fell about $41, with new-crop November and January falling back more than $22 each.
While the week may not have been a good one for prices, it was a good time to reap profits when canola had seen sometimes its highest levels ever. It wasn’t as if the market was going to keep climbing; something inevitably had to give.
Despite strong demand for edible oils on the global market, the Chicago Board of Trade soy complex, European rapeseed and Malaysian palm oil incurred their shares of losses as well over the week. In particular, Chicago soyoil fell by nearly 1.6 U.S. cents per pound.
Whatever independent strength canola had been showing during its remarkable rise went to the wayside once soyoil lost ground. For the most part canola is a follower, often lagging behind the moves soyoil makes. If the latter increases, so does canola, but at a slower pace — and the same goes when soyoil decreases. However, there was something of an exception to that rule this week when losses in canola outpaced those in soyoil.
The big question as to where canola goes from here depends on soyoil. The funds have a great deal of money invested in soyoil and an opportunity to take good profits isn’t something to sneeze at. There is a possibility the funds could become more aggressive and drive soyoil lower. In turn, so goes canola — and the days of $800 canola could be a happy memory.
Added to that is the idea that commercials have bought as much canola from producers as they possibly can through high prices. Supplies have been tight and the commercials have two avenues to take when the May contract expires: one, to buy as much from producers as they can, which apparently is over and done with; and two, roll into July or other contracts. For the latter, prices need to come down to make such a move more palatable. Also, reduced prices could entice new buyers who had been turned off by the contract highs.
Of course there is one other factor in all this: South America. Despite a soggy harvest in Brazil, well over 130 million tonnes of soybeans are to come off the fields. While dry conditions may have reduced yield potential in Argentina, some 45 million tonnes are expected to be combined. How that much soy plays on the market will not only affect the Chicago soy complex, but ICE canola futures as well.