After a long fall, canola futures prices bounced back some last week, marking a selling opportunity because there are more negative than positive factors in the price outlook.
There were several reasons for the runup. The United States Department of Agriculture’s March 11 supply and demand report had a mixed impact. It increased Argentina’s soybean crop by 1.5 million tonnes. It now stands at 35 million tonnes compared to last year’s 30 million.
In January, the USDA increased Brazil’s crop estimate to 51 million tonnes, up from 43.5 million last year.
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But the market focused more on USDA’s reduction in soybean oil stocks than on the increase in soybean production.
It pegged year-end world soy oil stocks at 2.1 million tonnes, down 50,000 tonnes mainly due to reduced production in the U.S. Last year, the year-end stocks number was 2.5 million tonnes.
Also, the weekly U.S. export report showed good soybean movement.
This collection of U.S. market news directly affected canola futures. Over the week, the May contract rallied more than $12 per tonne, but lost some of that ground on March 17.
Another factor helping canola was news that frosts in Europe in January and February took a toll on canola crops there.
Market newsletter Oil World estimated frost cut the winter canola crop there by almost a million tonnes, dropping the total to 12.39 million, about even with last year.
The slight sagging of the Canadian dollar also helped Canadian canola prices. The loonie dropped about a quarter of a cent during the week.
But the longer term outlook isn’t positive, even though the global oilseed supply-demand ratio is tight.
Harvest weather in South America remains nearly ideal.
Recent showers in large parts of the American plains are cutting into the drought premium that the market had built in. Better moisture in parts of the Canadian Prairies also could lead to a recovery in canola production.
The potential for war in Iraq and disruption to shipping also has the market on edge.
All this has the oilseed market in a negative frame of mind and it will require a major change, such as a resumption of North American drought or unexpected vegetable oil buying from a big player like India, to boost it.
