MarketsFarm — ICE Futures canola contracts climbed to fresh contract highs during the first week of April, but ran into profit-taking resistance and could be due for more losses as the market looks overpriced.
“We’re starting to see canola give back some of the extra premium it’s been putting on,” said Ken Ball of PI Financial in Winnipeg.
New-crop crush margins have dropped considerably over the past month, which Ball said was a sign that the new-crop futures were overvalued.
With limited old-crop supplies available, “the old crop is a wild card,” he said. However, while anything can happen in the front-month contracts, he added that new-crop prices still need to relate to the value of oil and meal, which will limit commercial buying interest at unprofitable levels at this time of year.
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Better Canadian crop prospects after the drought in 2021 and expectations for a large soybean crop in the U.S. should also pressure the new-crop contracts.
While there still are dry areas around the Prairies, much of the canola-growing areas are in much better shape than they were in the fall, with a slow snow melt and good spring rains, according to Ball.
As a result, he expected November futures could easily lose $100 per tonne to bring crush margins back in line with where the processors would like to see them. “Eventually reality will reassert itself,” he said.
In the meantime, Ball said, the current market represents “a phenomenal opportunity for growers to bank that premium.”
— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.
