Fund positioning contributes to stronger canola futures

Managed money funds continued to push their investment chips on the long side of the ledger when it comes to the vegetable oil complex, according to the latest Commitments of Traders report for April 28.

The funds hold long positions in the major components of the vegetable oil complex.

Funds hold a record net long position in soybeans, although they have been reducing their position over the past seven weeks.

The net fund long position in soybeans stands at 185,282 contracts, which is the equivalent of 926 million bushels (25.2 million tonnes).

During the past week, funds did sell back a net of 7,602 soybean contracts. The current fund position is still a record for this time of year.

Soybean products are also at a record long position, with soybean meal contracts containing a net long position of 121,189 contracts. This fund soybean meal position was increased from last week by 333 contracts. The fund position is a record for this time of year.

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Managed money funds have placed most of their bets in the oilseed market on soybean oil. This is likely due to the projected increased demand from biofuel.

The rally in crude oil is directly impacting the outlook for biofuel use in the coming months.

The total fund long position is an all-time record of 165,725 contracts, which is the equivalent of 4.5 million tonnes. Funds added 281 contracts to the net long position during the past week.

Of most importance to western Canadian farmers is the fund position in the canola market.

Funds added 10,636 contracts to the net long position during the week. The fund position continues be a record for this time of year and is a net long of 82,966 contracts (1.66 million tonnes).

Fund positioning in canola has been one of the factors pushing canola futures higher in the past month.

The main concern with the fund position being very one-sided is that it leaves the vegetable oil complex at risk to a sharp sell-off if crude oil markets decline abruptly.

It is important to remember that abrupt changes to fund position driving markets lower would have a temporary impact on vegetable oils. The futures will eventually settle according to the fundamentals of the individual oilseed markets.