There’s simply not much of an upside to canola futures right now.
At best, the oilseed is destined to remain rangebound, perhaps until the trade has a good handle on what spring planting on the Canadian Prairies could be like.
Another idea is canola will shift back and forth until the United States Department of Agriculture releases its 2024 crop outlook at its conference on Feb. 15-16. The USDA’s notions of what could be in store for that country’s soybeans will spill over into Canadian canola — be it up or down.
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Also, the huge short position in canola held by the speculative funds has meant those traders are essentially controlling the market for the time being. Presently, they wish to keep prices under control, holding back any upward surges.
Added to this is that huge soybean harvest just underway in South America. As significant as the successive cuts to Brazil’s soybean output have been, the overall picture regarding the amount of beans to pour out of the continent remains very high. What’s been lost in Brazil due to weather extremes, will be more than compensated in the massive harvest coming in Argentina.
After last year’s La Nina-generated drought that ravaged Argentina in 2022/23, the El Nino-inspired rains are set to double the country’s 2023/24 soybean production.
Then there’s Canada’s canola exports, which got off to a terrific start but then turned quite sluggish. At 24 weeks into the 2023/24 marketing year, outbound shipments of canola amounted to 2.688 million tonnes, down 1.215 million from the year-ago pace, according to the Canadian Grain Commission.
As canola prices slid on the Intercontinental Exchange, producer deliveries also waned. So far, they’ve hauled in 7.488 million tonnes versus 9.089 million this time last year. Farmers are definitely holding back their product, but any hopes of better prices are likely to be fleeting.
A bright spot continues to be domestic usage, at 4.957 million tonnes compared to the 4.640 million a year ago.
One plus of sorts for Canadian canola is Australia’s canola. It has a sizeable harvest of about five million tonnes, and its influx on the world market is just starting to recede. While that won’t produce good gains for ICE canola futures, it will reduce some of the pressure.
While canola is a faithful follower of the Chicago soy complex, it’s is also influenced by European rapeseed and Malaysian palm oil. Those two have seen modest gains that have spilled over into canola.
In the end, this all adds up to why canola is to remain rangebound. A downward shift for a day or two or more, will be followed by increases for a short spell. It’s not like January and February have proven track records of being remarkable months for sharp gains in canola on a consistent basis.
