MarketsFarm — ICE Futures canola rose like Icarus over the past few weeks, but just like that Greek mythological figure, it flew too high, only to come back down to Earth.
After the November canola contract rose in seven of its last eight sessions — in the middle of harvest, no less — and gained $35 per tonne during that span, the price climbed by more than $27 per tonne, to $891, early on Tuesday. However, it later suffered a midday price collapse and, at day’s end, settled near unchanged at $863.70.
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MarketsFarm analyst Mike Jubinville said that with canola prices rising for more than a week, it was about time for some sort of respite.
“There’s a day where we need to take a pause,” he said, calling nearby canola’s price movement on Tuesday “concerning.”
“That retraction of the early gains was a little bit of a shocking issue.”
Canola did manage to regain some lost ground on Wednesday; Jubinville cited overbought conditions and a two-week pullback of the U.S. greenback as reasons for canola’s rising prices.
Nearby canola had not exceeded the $900 per tonne mark since late June. Jubinville explained that over the summer, canola prices have seen resistance between the $860 and $880 levels.
“Anytime (prices) bounced, it failed at that level,” he said. “We punched through it (on Tuesday), but then it fell back down. That to me is a potential warning flag.”
Canola crush margins have eased off in recent days, according to Jubinville, but are still near historical highs which have been supportive of canola prices. Despite Canada’s 2022-23 canola crop improving to 19.5 million tonnes, export demand could pose a supply crunch.
“Crushers have all the incentive in the world to minimize an export program so they can ensure that they have enough supply just to meet their needs,” he said, adding that prices in the low $800s could bring Chinese demand back to “pre-Meng Wanzhou levels” — a reference to the Huawei executive whose arrest in Vancouver in 2019 caused a diplomatic row between Canada and China.
“If we punch through this resistance zone, the spec funds who were on the short side of the market who have been liquidating part of the market and helping rally the futures markets as of late, you’re going to see an additional momentum there,” Jubinville said.
“If we break through to the upside, all bets are off.”
— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.
