MarketsFarm — ICE Futures canola contracts fell hard to end the month of May, dropping to levels not seen in more than two years. While the oversold market may be due for a correction, there could also still be more room to the downside.
“It’s hard to have a real solid opinion of whether we’ll go up or go down, because you could easily make a case either way,” said analyst Mike Jubinville, of MarketsFarm.
“Is there room to go (lower)? absolutely,” Jubinville said, adding “are we oversold and due for a bounce? Absolutely.”
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Canola has lost about 45 per cent from its highs of the past year, with similar losses seen in Chicago soyoil, said Jubinville. However, he noted European rapeseed is down by 61 per cent from its own highs. While canola is usually the leader in the relationship with European rapeseed, the past six months has been the other way around and Jubinville thought the weakness in rapeseed could leave canola open to more downside as well.
Looking at the weekly chart, Jubinville expected the July canola contract that settled at $649.50 per tonne on Wednesday could easily drop into the $500 per tonne area. On the other side, a correction to the 20- or 50-day moving averages would see prices move back above $700 but would still leave the market in a long-term downtrend.
Crush margins are off their highs of the past year but remain attractive from the processor’s perspective, which should remain supportive, although Jubinville said there was increasing competition from other oilseeds in the export market.
With expectations for large crops already being priced into the markets, “if we fall short in any way, then we have room for a bounce,” said Jubinville.
— Phil Franz-Warkentin is an associate editor/analyst with MarketsFarm in Winnipeg.
