CNS Canada — Canola futures have trended higher in the most active nearby contracts in recent weeks, but still remain underpriced compared to soybeans.
From a chart perspective, ICE Futures Canada’s January contract is trading at the highest levels for the front month in two and a half years. However, while “the charts may be looking toppy, in reality (canola) is quite cheap,” said Ken Ball of PI Financial in Winnipeg.
As a result, he didn’t think it would take much to take canola higher still.
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Domestic crush margins remain at some of their strongest levels of the past year, keeping processors operating at a record pace. While there are more unknowns as far as exports go, Ball said generally solid usage should lead to tightening supplies despite the large crop.
Statistics Canada pegged the country’s canola production at 18.4 million tonnes in its report Tuesday. While that number was slightly below average trade guesses, the survey was conducted before the harvest was complete, and most industry participants anticipate upward revisions.
Recent strength in Chicago Board of Trade soyoil has provided underlying support for canola, as a move by the U.S. Environmental Protection Agency (EPA) to raise its biodiesel requirements gave that market a boost.
However, the EPA news also comes with some uncertainty, as traders are unsure what U.S. president-elect Donald Trump will do with the file.
While there is pressure from the oil and automobile industries to relax the biofuel standards, farm groups and local politicians will be lobbying hard on the other side to keep it, said Ball.
Reuters on Wednesday quoted a transition team official as saying Trump plans to appoint Oklahoma Attorney General Scott Pruitt as the new head of the EPA in January.
Pruitt is known as a leading figure in a legal effort by several states to throw out the EPA’s Clean Power Plan, the centrepiece of President Barack Obama’s climate change strategy, which requires states to limit carbon output.
— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Includes files from Reuters.