Chart: Canola Continues its Collapse  

The May canola contract extended its losses over the past week, a downdraft one analyst at least partially attributed to heavy farmer selling. 

Jerry Klassen of Resilient Commodity Analysis said the massive selloff is the result of farmers realizing there wouldn’t be a rally in canola prices after previously holding off on selling. Another reason, he said, is exporters and end users entering the market earlier than usual rather than in March and April. 

“What we find now is the market is in a situation where you have limited demand and increased farmer selling and that’s been the theme here over the last couple of weeks,” he said. 

Canola hit a 21-month low on Tuesday and lost another $9.40 on Wednesday to close at $720. As seen on the chart below, the May contract has fallen precipitously from its peak last spring of above $1,200/tonne. 

A projected record soybean crop in Brazil and a larger-than-expected canola carryout in Western Canada are further weighing on canola, Klassen said, adding that optimism over growing conditions in Western Canada and a drop in fertilizer prices are putting more pressure on prices. 

“We’re looking for a small year-over-year increase in (US) soybean acres next week from the (USDA’s prospective plantings report), and in Western Canada, we’re probably going to see a 3% to 5% increase in canola acres in new crop,” he added. “Farmer selling is probably going to be a little bit more aggressive here in the latter part of the crop year and then we’re going ahead into spring with excellent seeding conditions.”  

As summer approaches, Klassen said he expects canola prices to drop to C$600/tonne.  

“Maybe we won’t get there exactly on the May (contract), but to see the July go down another C$75/tonne wouldn’t surprise me. Because at some point, the farmer is going to open the floodgates and pour the stuff out,” he said. 

May canola: source - Barchart

Source: DePutter Publishing Ltd.

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