WINNIPEG – The ICE Futures canola market continues to take strength from a heat wave that has gripped much of Western Canada, however the results of a looming agriculture report may ultimately determine which direction it goes.
On Friday, August 10, the United States Department of Agriculture will release its monthly supply and demand estimates. Already, there are expectations the report will hike production figures and other data for U.S. soybeans.
“That could be the fly in the ointment,” said Keith Ferley of RBC Dominion Securities in Winnipeg. “How will soybean yields affect the canola situation?”
He adds trade tension between China and the United States is another issue that could impact markets at a moment’s notice.
On August 8, the front-month November contract re-took the psychologically-important C$500 per tonne mark, but the biggest question may be how long it can hold it. There are ideas funds could start buying if the canola market goes on a rally for a sustained length of time.
Ferley says for now the funds are still short 20,000 to 25,000 contracts.
“Crush margins are also on the back foot here and this rally will hurt them even more,” he said.
Volumes in the canola market have been abnormally low since July 30. That’s when canola futures ceased trading in Winnipeg and started up in New York.
Trading sites encountered technical problems on the first day, which explained some of the shortfall.
However, Ferley says the main reason why volumes have been so low recently, likely has to do with price.
“We’re thinking it’s a margin situation where ICE U.S. is demanding traders put up more margin for spread trades,” he said, noting a margin has to be paid before you can trade futures.
He added it also may explain why spread trades were so low.
“Now ICE U.S. has pulled their number down a bit so it’s giving traders a bit of a break,” he said. “But it’s still not as good as ICE Canada was, which has taken a lot of volume out of the market.”