While the November contract fell below C$600 per tonne on June 26 for the first time since late February, it has since gained more than C$50 to close at C$652.70 on July 3. Earlier that day, the contract reached C$659.70, its highest level since June 7.

Jerry Klassen of Resilient Commodity Analysis in Winnipeg noted that canola’s recent rise largely had to do with Chicago soyoil. Over the past week, August soyoil gained almost five U.S. cents per pound at 48.64, a price unseen since April.

He called it a “bean oil scare rally”, which was triggered after Indonesia said it would consider 100 to 200 per cent tariffs on Chinese goods. This could lead China to retaliate in kind towards Indonesian palm oil and perhaps buy more from Malaysia.

“You have a real uncertainty here over the tariffs from some larger vegetable oil exporters and that’s caused the soyoil to have a pretty good rally here over the last few days,” Klassen said, adding that spec funds covered some of their shorts for soyoil due to the tensions.

Managed money shorts for canola totaled more than 139,000 contracts at the end of May and soyoil’s surge created new short-covering and commercial demand for the Canadian oilseed, according to Klassen.

“Last week, we saw a pretty good source talk of new export business for Canadian canola. Then this week after (Canada Day), we had the tariff scare driving the soyoil and then we have fund buying for the soyoil and the canola,” he said.

Klassen mentioned that weather conditions were “optimal” for Western Canadian canola, but soybeans in the U.S. “need a little bit more heat.”

Due to the potential for high canola yields this summer, Klassen believes November canola will face resistance at C$660/tonne. He put the chances of the contract exceeding that level at “50-50.”

“There’s good hedge pressure that’s kind of limiting the upside,” Klassen explained. “We have a big crop coming. This is a temporary vegetable oil scare in regards to trade and tariff structures … The farmers are just pouring (old and new crop canola) out here. We have big selling coming up from farmers.”

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Losses in other markets, including Malaysian palm oil and European rapeseed futures, added to the declines in canola.

“Everybody is bearish vegoils, and it’s hard for canola to stand in the way of that,” said Bruce Burnett, director of markets and weather information with MarketsFarm.

Chart-based selling contributed to the losses in canola, as speculators have built up a sizeable net short position over the past month.

A move below previous support at $710 per tonne in the November contract likely encouraged additional speculative selling, with next support at $700 per tonne having “a bullseye on it for the bears,” according to Burnett.

However, he added, there was no real fundamental reason for canola to move much lower. He noted that while export demand was soft, the harvest is nearly done, and domestic processors were still crushing aggressively.

“I think we’re trying to bottom here more than anything else,” Burnett said.

— Phil Franz-Warkentin is an associate editor/analyst with MarketsFarm in Winnipeg.

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“The market tends to be back where it came from,” Anderson said, stressing that chances of canola pushing higher requires fresh bullish news. “It’s got to have a reason to recover.”

“To me it has to come from the demand side, not the supply side. It has to be the buyer stepping forward.”

Otherwise, Anderson said, the November contract could fall back to as low as $620/tonne, although the current support level is at $650.

“Technically we are oversold,” he said, adding that the ‘new Cold War’ between the U.S. and China isn’t helping any of the markets.

China has been cutting its soymeal purchases, switching to feed wheat as it’s cheaper, he said. In turn, that’s seen soymeal prices on the Chicago Board of Trade (CBOT) take a hard hit.

Another element in keeping canola prices under $700 is the price of crude oil. Anderson said he doesn’t believe the hype of crude rising toward US$100 per barrel; rather he said it’s going to remain at US$50-$60. Without spillover from strong crude prices, there would be insufficient support for any vegetable oils to rise by a great measure.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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Rising prices prior to the weekend later gave away to selling pressure after the weekend due to a correction in vegetable oil prices, according to broker Ken Ball of PI Financial in Winnipeg. But despite falling as much as $30 per tonne, canola still showed relative strength.

“The product side fell off about $40. That again is canola showing…it’s undervalued and it shouldn’t go down as easily as when the markets go down,” Ball said. “(Canola) should see some upside potential as long as vegetable oil prices stay reasonably steady.”

When the January canola contract surged past $900 on Friday, it was the first time the contract reached that mark since July 29. That day was also the last time the price settled above that level. Despite a recent inability to move above $900 and stay there, Ball believes that time will eventually come.

“I think the odds are still high that canola can get through and percolate higher,” he said. “It may not have any sharp upward action, but it should be able to percolate higher as long as vegetable oil can stay firm.”

Meanwhile, crush margins continue to hit record levels. Canola positions up to May 2023 are seeing margins surpass $200, according to ICE. The November/December stood at $271.58. While they are at a very high level, Ball does not think crush margins will stay this high for long.

“These are very, very extreme levels,” he said. “I don’t think we can see crush margins stay there because what high crush margins mean is that canola is relatively attractive to an end user buyer, both a crusher and a buyer for export. At those relatively cheap levels (for canola), we’re going to have too much demand.

“I don’t think canola can stay this relatively cheap because we don’t have the supply to meet the kind of demand that might be generated,” Ball added.

He also expects canola to undergo a turnaround very soon.

“We’re not necessarily expecting a huge upside in canola, but certainly the bias is firmer overall for the next little while,” he said. “Assuming vegetable oil prices are going to peak and fall back at some point, but so far they’re staying firm.”

— Adam Peleshaty reports for MarketsFarm from Stonewall, Man.

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The upward momentum is slowing down, said David Derwin, a commodities investment advisor with PI Financial in Winnipeg. However, he added, it remains to be seen if there will be a turnaround in the longer uptrend.

European rapeseed, Malaysian palm oil and Chicago soybean oil have all come into sideways patterns of their own over the past month, but Derwin noted past periods of stabilization in those markets over the past year have all eventually led to reestablishment of the uptrends.

The canola market typically sees its seasonal peaks in late June or early July, but weather uncertainty may disrupt that pattern this year, said Derwin.

Mixed conditions across the Canadian Prairies were likely keeping some caution in the canola market for the time being. While a few areas had a good start to the season, others were too dry and others too wet, with seeding still well behind normal in Manitoba.

China’s recent move to lift restrictions on canola imports from Viterra and Richardson should also be supportive, as “it’s basically saying that they want to have access to more canola products.”

Outside influences such as Russia’s invasion of Ukraine, Indonesia’s palm oil policy, Chinese demand and India’s wheat export restrictions will all be factors to watch going forward.

Amid that backdrop, Derwin said prices for grains and oilseeds in general appear to be pointed higher, although he cautioned the sentiment could quickly change.

“The weather says it’s got to go higher, demand says it’s got to go higher, and supply says it’s got to go higher, but if the charts and price patterns say it’s not going higher — you have to be ready to capture these prices.”

— Phil Franz-Warkentin reports for MarketsFarm from Winnipeg.

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The attaché pegged palm oil output to rise by 1.1 per cent at 46 million tonnes due to favourable weather and higher prices for producers. Also, the attaché revised 2021-22 production, raising it one million tonnes from USDA’s official number of 44.5 million.

As well, the estimates for marketing year exports increased, with the attaché raising the 2021-22 figure by one million tonnes at 29 million. The projection for 2022-23 also went up by one million at 30 million tonnes, based on demand increasing as the world recovers from the COVID-19 pandemic.

Also, it was noted, the lack of sunflower exports out of Ukraine due to the war could see more demand for Indonesian palm oil.

Domestic usage was increased as well, citing more palm oil being used for biofuel. Total domestic consumption for 2021-22 was at 16.3 million tonnes, up two per cent from USDA’s official number. Total usage for 2022-23 is expected to push to 16.66 million tonnes.

With more consumption, the attaché lowered ending stocks, with that for 2021-22 at nearly 6.18 million tonnes rather than USDA’s number of 6.5 million. The call for 2022-23 is lowered to about 5.52 million tonnes.

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That’s especially so with declines over the last few weeks in Chicago soyoil, Malaysian palm oil and European rapeseed, he said.

“No one is really interested in buying canola at these prices. It’s ludicrously overvalued,” Ball said.

Spec longs are hoping there will be a break in the vegetable oil market, in which prices would then climb higher and allow those specs to hang onto their canola contracts, he said.

“There’s definitely a trigger point where these guys have to get their money out of here,” he stressed, adding prices could easily tumble by $50-$70 per tonne very quickly.

“The massive long position continues to build. It’s extremely vulnerable to a really severe collapse. Unless [the specs] have enough money, saying we’re not letting it go.”

Other than the spec longs, Ball said no one else is buying canola, including the commercials. Crushers are now net sellers and export sales are near zero, he said.

“It’s bending, but it’s not breaking.”

Canola futures could plummet by $100 per tonne and still be doing an effective job in rationing demand, he estimated.

— Glen Hallick reports for MarketsFarm from Winnipeg.

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Terry Reilly, a grains analyst with Futures International, said corn is expected to hit around $5.25 per bushel, while soybeans will be around $14.50 (all figures US$). The March wheat contract is expected to reach levels around US$7.

Reilly cited concerns of South America’s lack of rain, along with ongoing labour strikes in Argentina, as providing significant strength to soybeans and corn.

Argentina’s dock workers reached an agreement with the government last week, securing raises and danger pay due to the COVID-19 pandemic. However, grain inspectors continue to negotiate, as their protest nears the one-month mark. The strikes have significantly slowed down the movement of grain though the country’s ports.

Additionally, some Argentine producers are planning on striking Jan. 11-13, following the government’s decision to temporarily halt corn export registrations.

“The government wants to ensure domestic markets have ample amounts of corn at a reasonable price until new crop corn becomes available,” Reilly said.

“There’s a lot of uncertainty regarding the size of the new crop, so the government wants to see how it shapes up before they start unloading it on to the international market.”

Strength in world vegetable oils, including Malaysian palm oil and sunflower oil, have also supported soybean prices. The March contract closed at $43.68 per pound on Wednesday.

“That’s adding to the bullish undertone for soybeans,” Reilly said.

— Marlo Glass writes for MarketsFarm from Winnipeg.

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David Derwin of P.I. Financial in Winnipeg said canola was holding steady in comparison to other vegetable oils.

“There’s general weakness in other markets, but canola hasn’t had too much of a move,” he said.

Considerable losses for Chicago soyoil hampered any significant gains for canola. The July soyoil contract has lost approximately half of a cent so far this week.

Planting is underway across most of the Canadian Prairies, with minor speed bumps caused by unseasonably cold weather and isolated instances of snow.

In Manitoba, all crops are about nine per cent planted; canola seeding is up to 15 per cent complete, depending on the region.

According to last week’s report from Saskatchewan Agriculture, canola was just two per cent seeded across the province as of May 4. Alberta’s Agriculture Financial Services Corp. (AFSC) on Friday reported that province’s canola seeding at 2.2 per cent complete as of May 5.

Relative weakness to the Canadian dollar has provided a bit of support to canola values. The dollar remained under 71 U.S. cents at midweek.

— Marlo Glass reports for MarketsFarm from Winnipeg.

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Ken Ball of P.I. Financial said lower soyoil values put canola “under tremendous pressure.” Nearby soyoil contracts were down by about a penny on Wednesday.

Earlier in the week, rumours swirled regarding the possibility of a renegotiated trade deal between Canada and China. That sparked some trading activity and provided some support to canola prices.

“There’s still a lot of chatter about negotiations with China and what they mean,” said Ball.

Despite the lack of buying from China, total canola exports are set to outpace last year’s. As of March 22, total Canadian canola exports total 6.11 million tonnes, due to dramatic increases in purchases from the European Union, Bangladesh and the United Arab Emirates.

Spreading activity also provided paltry support to canola prices, as traders sold oil and bought canola.

“That’s keeping prices propped up a bit,” Ball said.

Canola prices also found strength at midweek from a flagging Canadian dollar. The loonie closed at 70.34 U.S. cents on Wednesday.

— Marlo Glass reports for MarketsFarm from Winnipeg.

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