ICE weekly outlook: Canola watching currency, soybeans

CNS Canada — ICE Futures Canada canola contracts posted small gains during a choppy trading week ended Wednesday. Values were under pressure from the start due to a sharp break below major chart support on Feb. 9.

Expectations of a large soybean crop from South America along with the ever-strengthening Canadian dollar put pressure on canola throughout the week.

One analyst noted downward action was also keeping most farmers on the sidelines.

“The only farmer selling you have now is some farmers who are cash-poor or who need money for chemicals or who are going away until seeding,” said Wayne Palmer of Agri-Trend Marketing in Winnipeg.

Canola might be able to make a run higher if soybeans could claw their way back to $9 a bushel, “but it would be the funds that would need to do that,” he said.

On the bullish side, Malaysian palm oil stockpiles dropped to their lowest levels since July. El Nino has cut into production and reduced yields in both Malaysia and Indonesia.

According to Palmer, this could help canola as regular palm oil customers, such as China, may be forced to shop for different supplies.

However, for the most part, Palmer said canola is mainly a technical market right now and will continue to be shaped by the action of the Canadian dollar.

“Three weeks ago we were at a 68-cent dollar (relative to the U.S. dollar), not a 73-cent dollar. The end user says, ‘I’m not paying these kind of prices because your canola has gotten too expensive.'”

Palmer said he believes large funds are also poised to sell more before they start buying any of their positions back.

“Commodity fund selling has put us here; they’ve gone from a zero position to being short about 15,000 contracts.”

Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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