Even after hitting fresh contract highs in a number of months this week, canola futures may still have more upside ahead.
"The trend remains up," said analyst Mike Jubinville of MarketsFarm Pro. "The price of canola needs to be put at a level that discourages exports, while the domestic crushers actively pursue attaining as much of the limited supply that we have this year.”
Short-term corrections in the market are always still possible as fund traders will book profits on their large net long positions from time-to-time. But as long as the energy sector continues to trend higher, it is difficult to envision canola will go into “any sustained downtrend," Jubinville said.
The Chicago soy complex also showed strength the past week, but Jubinville noted that canola's traditional relationship with soybeans and soyoil is out of balance. The traditional calculation for determining crush margins uses soyoil and soymeal as benchmarks. When looking from that perspective, canola crushers should be seeing negative margins. However, the actual canola oil premium over soyoil - which is not publicly reported - is at record levels, he said.
"So, the real crush margin that doesn't show up in a theoretical calculation is still profitable,” Jubinville said.
"I can't recall a time when canola and soybeans have been out of balance to this degree."
January canola: source - Barchart
Source: DePutter Publishing Ltd.
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