Weather concerns provided the catalyst for strength in all of the major grains and oilseeds during the week ended July 9, with canola hitting its best levels in four months. However, shifting weather outlooks will keep the futures on edge over the next few weeks, as traders reacting to the day-to-day forecasts may create some volatility over the summer.
November canola has tried and failed to move above $480 on a number of occasions over the past few months, but finally moved decisively over that level and the 200-day moving average. Speculators covering short positions accounted for much of the strength, with some new bullish bets also entering the market.
Forecasts calling for hot and dry weather across the U.S. Midwest gave a boost to the soy market, with the gains there spilling into canola. Canadian traders are also trying to get a better handle on the size and condition of the Prairie crop.
While supplies remain large for now, ending stocks are poised to tighten by the end of the 2020-21 market year.
The most recent forecast from Agriculture and Agri-Food Canada predicts canola carry-out tightening to 2.3 million tonnes by July 31, 2021. That compares with the 3.8-million-tonne carry-out from the 2018-19 crop year and the projected 2.6-million-tonne carry-out for the current marketing year. If weather problems persist, and demand remains solid, ending stocks have the potential to dip below two million tonnes.
Excessive moisture in some areas of Western Canada, especially northern Alberta, has raised concerns over production losses and possible disease issues. However, there are also still plenty of dry areas and most analysts remain of the opinion, for now, that the canola crop is still in reasonable shape on balance. Time will tell.
Some of the largest gains during the week were in wheat. The advancing U.S. winter wheat harvest, nearing two-thirds complete, was a limiting factor, but anecdotal yield reports coming in below earlier expectations were somewhat supportive for wheat.
Declining production estimates out of Europe and the Black Sea region were even more supportive, with declining yield estimates out of Russia seen as boosting the export potential for North American wheat.
Minneapolis spring wheat was trading at contract lows in late June, but has since rallied by about 20 cents per bushel off of those lows. Chicago and Kansas City wheat futures have posted even larger gains.