MarketsFarm – It was a bit of a tough week for canola on the Intercontinental Exchange (ICE), although there was something of a bright spot after the release of the August supply and demand estimates from the United States Department of Agriculture (USDA).
As one trader put it, canola did its job by increasing in price. Ever tightening supplies and the prospect of a harvest far below the 20 million tonnes initially expected has meant price rationing will have to control what’s left of Canada’s canola supply. Prices have to increase enough to make canola too expensive, forcing buyers to veer away and chose something else.
That supply issue was quite evident in the ICE canola crush margins during the week, as the November-October and November-December contracts pushed below C$10 per tonne, which essentially means the crushers weren’t making any money. Since then those upfront margins have doubled to the C$18-C$19 per tonne range.
Further adding to the supply conundrums will be how much canola comes off of Prairie fields. As stated many time before, initial expectations had been for a crop of a little more than 20 million tonnes. Some in the trade even speculated earlier this year that 22 million tonnes might have been possible. With the severe drought gripping the region, production estimates have dropping to 15 million to 17 million tonnes, with a few suggestions of 12 million tonnes.
For the most part, the rain received on parts of the southern Prairies won’t have much of an effect on canola, other than what had been planted later. The heat and dryness forced canola to develop early, but later seeded canola might have a bit of a chance to mature under less stressful conditions.
Nevertheless, there’s simply not going to the amount of the Canadian oilseed as hoped for. In turn that will mean some farmers will come up short in meeting their contract obligations. As one trader noted this week, grain companies have already been working with growers to figure out what can be done when not enough is delivered.
As for the bright spot mentioned earlier, canola received a good jolt from the strong upticks on the Chicago Board of Trade (CBOT) following the USDA report. There was a strong bullish reaction to the estimates that generated spikes in soybeans, corn and wheat. The spillover pulled canola up by double digits, the upticks in soy complex withered away and kept canola to the downside, but at least well away from its earlier lows.