Traders largely abandon old-crop July canola

New-crop crush margins imply canola is still relatively cheap

Reading Time: 2 minutes

Published: June 10, 2021

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Market participants are banking on new-crop canola production to help relieve glaring supply shortages.

The ICE Futures canola market moved higher during the first week of June, as a heat wave heightened dryness concerns across the Prairies. With North American seeding operations nearing completion, attention in the agricultural futures should be squarely on weather forecasts heading into the summer months.

Environment Canada issued heat warnings across all of Western Canada, while key northern growing regions of the United States dealt with similar hot and dry weather.

The old-crop canola situation remains tight and market participants are banking on new-crop production to alleviate supply shortages. It’s still early in the growing season, but timely rains will be needed within the next few weeks or the lack of moisture may start to cut into yield prospects.

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The old-crop July contract has been largely abandoned by commercial traders, leaving the front month open to volatile speculative price swings before its expiry. While the dry conditions should remain supportive overall, the whims of speculative fund traders could lead to surprises.

The old/new-crop spread has started to narrow in somewhat, but remains historically large with a great deal of room to the upside for the new-crop months.

November canola moved above $750 per tonne on June 4, nearing the high for the contract of $759.80 hit a month earlier.

Wide new-crop crush margins of over $150 per tonne above the futures imply that canola is still relatively cheap compared to product values, even at their current strong levels. Demand for vegetable oil especially appears to be showing no signs of easing, with Chicago Board of Trade soyoil hitting its best levels in 10 years during the week.

That strength in vegetable oil was also supportive for soybeans, but better Midwestern moisture conditions tempered upside in the bean market to some extent. Looking beyond the weather, the soybean market in the U.S. was showing a head-and-shoulders chart formation, which could suggest the soybean market was topping out.

Early condition ratings look good for the U.S. corn crop, with day-to-day weather forecasts likely to dictate the futures direction over the upcoming weeks. However, drought conditions for Brazil’s second crop remain a supportive influence in the background.

U.S. winter wheat is also thought to be in generally decent shape, although too much moisture in some regions could be cause for concern.

Spring wheat was the bullish outlier of the U.S. grains, climbing sharply higher on the back of the same weather worries that boosted canola.

About the author

Phil Franz-Warkentin

Phil Franz-Warkentin

Editor - Daily News

Phil Franz-Warkentin grew up on an acreage in southern Manitoba and has reported on agriculture for over 20 years. Based in Winnipeg, his writing has appeared in publications across Canada and internationally. Phil is a trusted voice on the Prairie radio waves providing daily futures market updates. In his spare time, Phil enjoys playing music and making art.

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