ICE weekly outlook: Canola gains depend on soybeans

CNS Canada –– ICE Futures Canada canola contracts moved higher during the week ended Wednesday and may have more room to the upside, provided the market continues to see a boost from the U.S. soy complex.

“Right now, this market does not want to go down,” said senior analyst Wayne Palmer of Agri-Trend Marketing, on the strength in soybeans.

Chart-based fund buying provided much of the original strength in beans, he said, while forecasts calling for hot and dry weather across the Midwest have added fuel to the fire.

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“There’s nothing abnormal about getting hot weather in June,” said Palmer, but he added tightening supply projections were bullish.

The U.S. Department of Agriculture releases updated supply/demand estimates on Friday, and he noted the projected 2016-17 U.S. soybean carryout was “very bullish” in the May report.

An upward revision to the carryout number would be bearish, but an unchanged reading or downward revisions would likely spark additional gains in soybeans, especially given production problems in Argentina, said Palmer.

“We need a good (U.S. soybean) crop, at the very least, in order to keep the supply chain intact for the oilseeds,” said Palmer.

With a bullish outlook for soybeans, “canola will hit $540 to $550 (per tonne) within the next five to six weeks, if not sooner,” said Palmer.

Prices would likely already be there, he said, were it not for the recent strength in the Canadian dollar.

End users have as much canola as they want right now, he added, but continued strength in soybeans and relative cheapness in canola is likely to bring in more buying interest for the Canadian oilseed.

At the same time, farmers are unlikely to sell until their targets are hit.

“One of these days we’ll top out, but that’s not likely until the crop is 80 per cent made,” said Palmer, placing that date at the end of July.

Acreage reports, due out later in June, have the potential to shift the markets as well, and Palmer said the highs in the market could be in for the season if U.S. soybean acres or Canadian canola acres see large upward revisions.

Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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