MarketsFarm — After being in a steady decline over the past month, the ICE Futures canola market was on the rise for the week ended Wednesday.
The July canola contract closed Wednesday at $670.30 per tonne, an increase of $20.70 from the week before. Meanwhile, the November canola contract rose $22.60 per tonne over the past week to close at $647.40.
Jerry Klassen of Winnipeg-based Resilient Commodity Analysis laid out the reasons for canola’s week-long rally, one of which was funds closing out their short positions on the oilseed.
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“The funds had a pretty big short position here as of (May 30). I think we’re seeing a bit of managed-money short covering here,” Klassen said. “The (U.S. Commodity Futures Trading Commission’s) Commitments of Traders report showed that we’ve been seeing good commercial demand at these levels.
“When canola’s going under $680 or $660 (per tonne), you have the market at a level where the commercials are really stepping forward for it and at the same time, you have managed money short covering here.”
Klassen also cited a projected major drop in Australian canola production this year as another factor providing support. But the main focus, he said, is what type of weather will show up for Western Canada.
“We’re pretty saturated in eastern Saskatchewan and in Manitoba, but I think once you get into Alberta, some of those canola-growing pockets are on the drier side,” he said. “I think if you take the average canola yield at 37 or 38 bushels per acre, the supply and demand for the 2023-24 crop year gets pretty snug… We’re putting a bit of a risk premium here in the canola market because of the potential for lower yields.
“A third of the canola area needs some timely rains over the next week or you’ll see some significant yield drag.”
The United States on June 14 will update its biodiesel fuel mandate, which may affect oilseed prices, along with a pending crude oil production cut by Saudi Arabia in July. Klassen expects the July contract to go back up to $700 in the coming weeks.
“Maybe a bit up to $720, into that range,” he said. “We’re not getting into a runaway bull market here, but if you see another $30-$40 upside (on the July contract), that wouldn’t surprise me.”
— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.
