Lingering old-crop supplies limit canola futures’ climb

ICE Futures canola contracts moved higher during the week ended June 14, but ran into upside resistance as conflicting influences pulled on the market.

Weather concerns, both in the United States and Canada, were a major supportive influence.

Excessive moisture across the U.S. Midwest has left many intended corn acres unplanted. Soybeans can go in the ground later than corn, and with insurance deadlines long past for corn there had been ideas that some intended corn acres would go into beans instead. While some progress was being made around the rainfall, it’s come to the point that some soybean area will also be lost this year.

Canadian farmers would love if some of the U.S. moisture made its way north, as some parts of the Prairies are going through their third year dealing with drought conditions. While there was some widespread precipitation over the Father’s Day weekend, Mother Nature needs to come through with more moisture as fields are already in rough shape. Dry conditions have also exaggerated flea beetle infestations, as slow germination has left plants more susceptible to the pests.

Weather concerns should remain supportive for canola through the growing season, but there may not be that much room to the upside.

Old-crop Canadian canola supplies remain large, with Agriculture and Agri-Food Canada forecasting record carry out stocks of 3.9 million tonnes for 2018-19. Even with lower production in 2019-20, the government agency sees the ending stocks climbing to 4.3 million tonnes by the end of July next year.

Slow exports are to blame for the burdensome supplies, as there continues to be no resolution in sight to Canada’s diplomatic dispute with China. Any headway on that front would be supportive for the oilseed.

Canada has exported about eight million tonnes of canola during the crop year to date, about 900,000 tonnes behind the previous year’s pace, according to the latest Canadian Grain Commission data.

U.S. grains and oilseeds are also taking direction from ‘will they/won’t they’ trade negotiations with China. Sentiment changes on a daily basis, leading to some volatility in the futures.

Corn did hit its best levels in five years during the second week of June, but could be running out of steam to the upside as the lost acres are priced into the market.

Wheat markets were mixed in the U.S. during the week, with gains in Chicago and Kansas City winter wheat contracts, but a softer tone in Minneapolis spring wheat. The rains causing planting delays for corn and soybeans are also leading to harvest delays for winter wheat. Quality and disease issues are also being watched.

While Minneapolis spring wheat missed out on the latest buying interest, the possibility of tighter supplies of higher-protein wheat this year could be supportive for the contracts going forward.