What goes up in grain markets, must come down — eventually

Traders keep an eye on the possibility of price rationing if stocks fall too low

Domestic canola usage for the 2020-21 crop year has caught up and passed the levels seen in 2019-20.

Volatility was certainly the order of the week for ICE canola futures as prices fluctuated up and down — due partly to the coming expiry of the March contract, which has been part of a few spectacular months of trading.

Canola contracts pushed higher and higher over that time, albeit with a few steps back for moves such as profit-taking. As the March contract approached a ceiling, such as $650 per tonne, then $680, followed by $700, it punched through each one to eventually set highs unseen since 2008. The later-month contracts followed as the market remained inverse.

As stated before, tight ending stocks have been one of the main drivers in canola prices going up. Concerns that stocks could fall too low, come the end of the 2020-21 crop year, has the trade keeping an eye on price rationing.

Low ending stocks projections for U.S. soybeans, as well as corn, added fuel to the fire — as have scarce soybeans from Brazil, with a paltry 45,000 tonnes exported in January, a drop of more than 95 per cent from that country’s exports in January 2020.

Demand for canola also played its part in the rise of canola prices. Exports of the Canadian oilseed stood at nearly 6.2 million tonnes as of Jan. 31, according to the Canadian Grain Commission. At just over the halfway point of the current marketing year, exports are about 35 per cent ahead of those from the same time last year.

Domestic usage of canola for the current year caught up and passed that of 2019-20. At Week 26, domestic usage was at just short of 5.39 million tonnes, bettering the previous year’s 5.27 million.

Crush margins too have seen their share of high numbers, with the November/October approaching $140 per tonne and the November/December above $130.

After canola incurred some declines this past week, its wild ride shifted upward when Statistics Canada released its report on grain stocks as of Dec. 31. The federal agency said total canola stocks in Canada were down to 12.14 million tonnes, compared to nearly 15.91 million at the end of December 2019.

When the upward climb reaches its inevitable end, the drop in canola prices could be dramatic. Canola hitting its daily limits on that downward slide could be a possibility.

About the author

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Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

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