Canola prices took a wild ride on the Winnipeg Commodity Exchange last week as competing factors kicked the crop price around.
There’s little sense of which way the market is heading.
“You move the market $15 lower on Monday and Tuesday, and then you look at world values for June, July, August shipment and you realize that Canadian canola is very inexpensive relative to world prices and you saw some commercials trying to take advantage of that weakness,” said Tony Tryhuk, manager of commodity trading for RBC Investments.
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“I think we can expect a lot more (volatility) as July 1 approaches.”
At one point on June 2, the July canola futures contract fell to $328.50. On June 9, it opened at $342.
The July contract is the last chance to price out old-crop canola before the new crop year. Tryhuk said some farmers last week took advantage of this, which helped drive down prices. Commodity funds also rolled many July futures positions into new November positions, which increased the downward pressure.
Little buyer interest made the situation worse.
Then people began to realize that WCE canola price was substantially less than the price for Australian and European canola, and they began buying.
“You see these dramatic moves, then we realize ‘wow, are we ever cheap.’ Then you come in to try to buy it back but there’s nothing for sale,” said Tryhuk.
With little farmer selling and little liquidity, the price rallied sharply.
Tryhuk said this kind of volatility is common at this time of year, as the old crop year fades. People are trying to figure out whether buying or selling pressure will drive the market in the next few weeks.
The Canadian price for canola may now be cheap compared to overseas, but do commercial buyers want it? Do they think they can wait and buy it cheaply?
“If we (find more commercial buying), then we’re too cheap and we need to move this market higher,” said Tryhuk.
“If we do not see fresh demand come into the market for old crop, then we don’t need to be where we are right now at $340,” he said June 6. “We could be $320.”
With an expected 600,000-800,000 tonne canola carryout, some commercial buyers feel they won’t have trouble buying canola for less than today’s prices, he said.
Canola prices have fallen since harvest, when a short crop drove prices high and convinced many commercial buyers to buy in the expectation of healthy margins.
But analysts say the high canola prices drove away demand and many traditional canola users used alternative oils, forcing prices lower.
