Canola futures hit some of their best levels in two years during the first week of September, but ran into resistance to the upside as investors also contemplated updated data from Statistics Canada.
Statistics Canada had two reports out during the week, with production numbers on Aug. 31 and old-crop ending stocks on Sept. 4.
The government agency pegged the 2020-21 canola crop at 19.4 million tonnes, which was at the lower end of trade estimates. However, the data included revisions to previous crop years, with the 2019 canola crop upped by about 900,000 tonnes, to 19.5 million.
The August production report is typically downplayed by the trade on ideas that farmers under-report their yields in the survey. Higher readings in subsequent reports are a common occurrence. However, due to the COVID-19 pandemic, this year’s report was compiled without a survey component and instead relied on satellite imagery and computer models.
The question now is the reliability of the satellite imagery, and also whether the data accounted for yield losses due to hot and dry weather in August.
While the size of the 2020 crop still remains to be seen, old-crop ending stocks data added an extra piece to the supply/demand puzzle.
Canadian canola supplies as of July 31, 2020, were pegged at 2.7 million tonnes by Statistics Canada. That was in line with expectations, but well below the upwardly revised reading of 4.2 million tonnes carried over the previous year.
Beyond the supply/demand fundamentals, speculative traders have been busy building long positions in both soybeans and canola. There could be more room to the upside from a technical standpoint, but seasonal harvest pressure may slow any moves over the next month or two.
November canola moved decidedly above $500 per tonne during the week, marking the first time in roughly two years that the front-month contract was trading above that level.
That level should provide some psychological chart support through the harvest season, with longer-term upside resistance not seen until the $520-$540 level.
In the U.S., soybeans also hit some of their best levels in two years during the week, with much of the strength there tied to good export demand — especially out of China.
Weather concerns in parts of the Midwest were also followed closely. There are ideas that the U.S. soybean crop size may not live up to earlier expectations, given hot and dry weather over the past few weeks. A severe windstorm in August also damaged many fields.
Upcoming U.S. data includes the monthly supply/demand report, out on Sept. 11. Any revisions to the production estimates for both soybeans and corn will be followed closely.