Tightening old crop supplies play role in canola futures
Canola futures traded at their highest levels in 18 months in early May, but the market also showed signs of running into resistance.
Dwindling old crop supplies should keep the front month well supported, although new crop weather conditions will become more and more of a market feature in the weeks ahead.
Total Canadian canola exports through nine months of the 2024-25 marketing year of 7.9 million tonnes are already above Agriculture Canada’s forecast for the entire year of 7.5 million tonnes. The question now is, will the country run out of canola?
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Statistics Canada reported canola stocks in the country as of March 31 at 5.9 million tonnes, which was down by 39 per cent from the same point a year ago. Canadian Grain Commission usage numbers over the past month of about one million tonnes of exports and 1.1 million tonnes of domestic crush leaves Canada with only 3.8 million tonnes of canola to last the three months until harvest.
Crushers typically scale back their operations at this time of year to conduct maintenance, so their demand may ease off naturally.
Farmers are also thought to have little unsold canola left to market. Export customers will be shifting their demand to the cheaper new crop, but any exporters scrambling to fill a vessel with canola they don’t already own could be scrambling.
A squeeze on the old crop canola would be supportive for prices, with $725 per tonne a nearby technical target for the front month. However, if that were to occur, basis levels would likely weaken in the countryside, negating any benefit for farmers.
Apart from the tightening old crop supplies, there are several outside factors that may influence canola futures going forward.
Most important will be weather conditions through the growing season. A relatively dry spring should allow for active seeding progress across the Prairies, but the lack of moisture may cause concern in the long run if there are no timely rains.
Farther abroad, shifting global trade policies are key.
Even the possibility of China and the United States talking about trade was enough to give U.S. futures a boost recently. The escalating conflict between India and Pakistan, along with the ongoing wars in Ukraine and Gaza also have an indirect effect on the agricultural commodities, especially in relation to crude oil.
That commodity has generally been under pressure lately, which has contributed to softness in corn.
Eventually a tipping point may be reached where weak crude oil makes corn-based ethanol production uncompetitive. “Corn is king,” and if corn falls, the other grains and oilseeds would follow.
Source: producer.com