Canola Futures Expected to Start Steady, May Turn Lower by Close

Strategic Insights -

Canola futures are expected to start steady to slightly firmer on Wednesday's session at the Winnipeg Commodity Exchange (WCE), but most market participants are not sold on the idea that values will close higher. Underlying support for canola prices is seen coming from firmer calls for CBOT soybean and soyoil futures, a pull-back in the value of the Canadian dollar, and steady commercial demand.

Key Takeaways:

  • Canola futures are expected to start steady to slightly firmer on Wednesday's session at the WCE.
  • Most market participants are not sold on the idea that values will close higher.
  • Firmer calls for CBOT soybean and soyoil futures are seen as supportive price influences.
  • A pull-back in the value of the Canadian dollar and steady commercial demand are also seen as supportive.
  • Some short-covering on the open is expected, combined with the absence of significant farmer deliveries to the country elevator system in Western Canada.
  • Good weather for the development of the recently planted canola crop on the Canadian prairies will temper some of the upward price action.
  • The record large old crop supply of canola in Canada and huge old and new crop US soybean supplies are seen as bearish for canola futures.
  • Sentiment that canola values have reached an overbought level and are due for a downward correction will further limit the upside in the commodity.
  • The absence of an announcement regarding the inclusion of biodiesel in all fuels sold in Canada by the federal government may spark some selling.
  • Western barley and feed wheat futures are seen opening steady to 50 cents on either side of unchanged.
  • The lack of details in the Canadian Government's ethanol announcement has bearish implications for both barley and feed wheat futures.
  • Underlying support in barley is seen coming from the lack of farmer deliveries and a recent pick up in feedlot demand.

Statistics:

  • Canola futures are expected to start steady to maybe C$1.00 per metric ton higher on Wednesday.
  • Western barley and feed wheat futures are seen opening steady to 50 cents on either side of unchanged.
  • 5% ethanol inclusion rate in all fuel sold in Canada will be in place by 2010.

Sources:

  • Resource News International, May 24, 2006
  • Winnipeg Commodity Exchange (WCE)
  • Canadian Government announcement regarding 5% ethanol inclusion rate in all fuel sold in Canada