Has canola topped?
That’s something some traders and analysts are wondering as canola futures prices repeatedly bump off the $460 to $470 per tonne level.
But it’s not a simple question to answer this year.
“It’s really a jumbled-up situation,” said Ken Ball, a broker with Union Securities in Winnipeg.
“It had appeared to top, but it’s come back up to those levels and is holding there, so that creates the possibility that it’s not a top.”
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Canola has come a long way from the $380 to $390 level on the November futures contract that it held from spring into early summer.
In June, it reached $430 before beginning another leg up in July that saw it reach about $470 by the beginning of August.
Canola has not since been able to break convincingly through the $470s, and has twice dropped down to the $440s before recovering.
Supplies are generally seen as adequate by the industry, and while there are weather concerns around the new crop yet to be harvested, few believe that frost or other factors will cause enough damage to leave demand short.
Canola always trades within a range mainly pegged by other larger vegetable oil crops like soybeans and palm, but there is little market clarity coming from those commodities.
Soybeans, the biggest influence on Canadian canola prices, have shown a similar topping motion recently, unable to break above the $10.25- $10.40 level on the November Chicago futures contract.
Allendale Inc. market analyst Rich Nelson said the soybean crop is unlikely to give canola a reason to rally much because it is nearly mature.
“At this point, we don’t have the major problems needed to get this crop hurt enough (to spark a rally),” said Nelson.
“If we take some yield off of recent estimates, we’re still not going to be in a dangerous situation.”
Canola has recovered its competitive mojo since the oilseed rally began.
In May, soybeans had a solid premium compared to canola, but as the Prairies’ weather problems hit at seeding time, leaving millions of acres unseeded, canola surged ahead and closed the gap between the oilseeds. That relative strength, compared to the spring, has continued and is the case in early September.
While traders think oilseeds in general are unlikely to rally in the short term, canola could do better because so much production is based in Canada and so much of that still remains in the field.
“It’s mostly weather that’s causing that extra canola strength,” said Ball.
“We’ve harvested in November for each of the past two years, but everyone knows you can’t count on being able to do that every year.”
