Canola higher but outlook still bearish

WINNIPEG — ICE Futures Canada canola contracts moved higher during the first trading week of 2018 as speculators covered short positions and the market saw a modest recovery off of the late-December lows.

Bitterly cold temperatures across much of Western Canada and the resulting slow-down in country movement was also supportive, although the latest grain handling numbers still show ample supplies in the commercial pipeline.

The general outlook remains relatively bearish for canola, despite the early 2018 pop higher, with the narrowing old/new crop spread something to keep an eye on.

As recently as November 2017, the July 2018 canola contract routinely traded at a premium of C$30 to the November 2018 contract. That was before Statistics Canada raised its production estimates and concerns over tight supplies by next summer started to fade.

The old/new crop spread hit a session low of C$2.50 over at one point during the week, but eventually settled with the July contract trading at a premium of C$7.90 per tonne to the new crop November.

In addition to expectations that canola supplies won’t be that tight by the end of the crop year, the narrowing old/new crop spread also ties into ideas that farmers will likely be seeding a big canola crop again this spring.

While prices may not be that great, the alternatives are worse in many cases, and the early forecasts suggest another large canola crop on the horizon in 2018.

All that should keep canola under pressure in the near term, barring activity in outside markets.

Movement in the Canadian dollar could be another bearish influence, if the first trading week of 2018 is any indication.

The currency climbed well above the US80 cent mark on some favourable jobs data and could be due for some more strength if the improving economic indicators also result in an increase in interest rates from the Bank of Canada.

In Chicago, the excitement these days is all weather related.

Argentina is either too dry or seeing just enough water, depending on the day and the forecast. South American soybeans are still being planted in some areas, and the day-to-day shifting weather outlooks that sway the futures could lead to longer-term trends once the outlook from the continent gets a bit clearer.

The U.S. Department of Agriculture releases a slew of reports Jan. 12, including quarterly stocks, winter wheat acres and updated production estimates, which could provide some nearby direction for the grains and oilseeds.

Wheat futures were also keeping an eye on weather forecasts with cold temperatures across the U.S. Plains raising concerns over winterkill. However, world wheat supplies remain large, and all three U.S. wheat contracts ran into resistance and drifted lower in the latter half of the week.

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