Lack of export demand drags canola to multi-month lows

Improved outlooks for South American soybeans aren’t helping

The thesaurus got a bit of a workout during the week ended Dec. 15 in an ongoing effort to come up with new words to describe the downtrend/slide/drop/slip/fall/collapse/general sense of weakness in the canola market.

Canola prices fell to their lowest levels in three months during the week, and while Friday saw a modest correction, there’s still room to the downside.

The January contract finished the week at $495 per tonne, well below former psychological support at $500 and the 200-day moving average at roughly $503 per tonne. Fund traders had started the week holding net long positions, but were likely neutral to net short by Friday’s close. The next support comes in at around the September lows near $490 and then around $480 per tonne.

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A lack of fresh exporter buying interest is contributing to the weakness in canola, with Chinese demand said to be non-existent for the time being.

The Canadian Grain Commission reported that farmers delivered 375,900 tonnes of canola during the week ended Dec. 10. Exports were up slightly on the week, with total exports to date of 3.8 million tonnes, running about 400,000 tonnes ahead of the year-ago pace.

While canola exports are running ahead of the year-ago pace, that business was already on the books and prices may need to head lower in order to uncover some more demand.

Visible supplies in the commercial pipeline remain at relatively comfortable levels of about 1.5 million tonnes, limiting the need for end-users to bid up the market. Widening basis levels, despite the declining futures, were noted in many locations.

Improving weather forecasts out of Argen­tina were also having a bearish influence on the Canadian market, as the better soybean prospects in the South American country weighed on the Chicago futures.

With the North American growing season all wrapped up for the year, production news out of South America could provide the spark for a corrective rally in the futures if any problems develop.

Soybean and corn futures both trended lower over the course of the week, with bearish technical signals contributing to the softer tone.

For wheat, ample world supplies remain a major bearish influence, but oversold price sentiment was enough to help the U.S. contracts see a bit of a recovery off of their lows. Mounting concerns over dryness in the southern U.S. Plains were also being watched, with the lack of moisture leaving winter wheat more susceptible to damage if the temperatures drop.

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Phil Franz-Warkentin - MarketsFarm

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

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