Canola seeding is set to begin on the Prairies and canola prices are in a state of indecision.
It feels odd to make that assessment after the July canola contract on the Intercontinental Exchange gained $14.60 per tonne during the week ended April 25, to close at $636.90. However, two straight days in the red to end that week have traders feeling cautious.
July canola has been trading rangebound between $620 and $660/tonne since early March. The 20- and 100-day averages converged to meet during the week, with the 50-day average only $10/tonne below.
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Should canola get out of its holding pattern, there are reasons it could go higher or lower.
Many anticipate weather to become a bullish factor this summer. Much of the Prairies are already under drought conditions and wildfire season has started in the northern half of Alberta. Even with El Nino seeing itself out, it is still expected to be a hot summer in Western Canada.
On the flip side, frost conditions in central Europe last week may have negatively affected Europe’s rapeseed crop.
July soyoil is trading below its 20-, 50- and 100-day averages, which may indicate an imminent rebound. Seasonal declines in crude oil stocks and cuts in production could give canola prices a boost, with adjustments in United States biofuel policies also being followed.
Sluggish export demand for canola is putting pressure on prices. Statistics Canada’s projection of seven million tonnes of exports this year are becoming a fantasy because the current pace indicates six million instead. Of course, whatever’s not used will become additional carry-in stocks and with July crush margins around $45/tonne less than last year, those stocks might just stay in the bin.
After weeks of shrinking net short positions for canola and soyoil, both markets saw the funds add more bearish bets last week. For the latter, it was a sharp shift in sentiment as managed money’s net short positions moved from 3,600 contracts to more than 51,000.
When asking where canola prices will go, you may get a different answer each time. Right now, the trade is deliberating on not only a verdict, but whether a deadlock will be acceptable.
