Despite many signs indicating a rebound, canola prices instead took off in the other direction on Oct. 19.
In a selloff that left many analysts checking their charts and scratching their heads, canola blew past support levels and had its largest one-day drop in just over a month.
The November contract fell $19.50/tonne to end Oct. 19 at $692.20, while the January contract dropped $13.50/tonne, to $705.20. It could probably have fallen further if it weren’t for support from crude oil and a weaker loonie.
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Market manipulation from the funds was posited as a likely culprit, but it could also have been a case of follow-the-leader. Chicago soyoil had its worst day in three weeks, while European rapeseed and Malaysian palm oil had negative momentum as well.
No matter the cause of canola’s terrible, horrible, no-good, very bad day, it should be considered an aberration rather than a trend.
Canola crush margins are still extremely high, with the nearby at $237.91 as of Oct. 19, which should keep the oilseed in demand for a while. The funds also have canola at its largest net short position since June at 61,744 contracts as of Oct. 10.
According to the Relative Strength Index, both the November and January contracts are slightly above 30, just shy of being considered oversold, and also below the 20-, 50- and 100-day moving averages.
The western Canadian canola harvest will end shortly. The European Union’s next agricultural report on Oct. 23 should also provide more insight on that region’s rapeseed crop.
Soybeans don’t have the bullish indicators of canola, but demand appears to be on an upswing. Export sales for 2023-24 U.S. soybeans totalled 1.371 million tonnes for the week ended Oct. 12, up 30 per cent from the previous week and 92 per cent from the four-week average. Of those sales, 69 per cent went to China.
Drought conditions affecting the Mississippi River in the U.S. and the Amazon in Brazil are also causing logistical headaches for their crops, as well as for vessels carrying soybeans and corn.
Speaking of corn, ethanol production in the U.S. surpassed 1,000 barrels per day on average for the 20th time in 21 weeks. This type of production run hadn’t been seen since 22 straight weeks above 1,000 barrels per day, which occurred from October 2019 to March 2020, according to the U.S. Energy Information Administration. This should be a good sign for Chicago corn and biofuels in general.
Canola could return to an upward direction soon. One bad day doesn’t represent the entire market.
