Canola futures have risen over the past week and the market may have more room to run higher amid production uncertainty, according to one analyst.
Jerry Klassen of Winnipeg-based Resilient Commodity Analysis said he expects the nearby July contract to go back up to $700/tonne in the coming weeks. The July contract closed Wednesday at $670.20.
“Maybe a bit up to $720, into that range,” Klassen said. “We’re not getting into a runaway bull market here, but if you see another $30 to $40 upside (on the July contract), that wouldn’t surprise me.”
Both the July and new-crop November canola contracts have rallied about $20 over the past week, gains that Klassen at least partially attributed to short covering.
“The funds had a pretty big short position here as of (May 30),” he said. “I think we’re seeing a bit of managed-money short covering here. The (US Commodity Futures Trading Commission’s) Commitment of Traders report showed that we’ve been seeing good commercial demand at these (price) levels. When canola’s going under $680 or $660, you have the market at a level where the commercials are really stepping forward for it and at the same time, you have managed money short covering here.”
Klassen also cited a projected major drop in Australian canola production this year as another factor providing support. An ABARES report this week forecast 2023-24 Aussie canola output would fall 41% on the year but would still be above the 10-year average at 4.9 million tonnes.
But the market’s primary focus, he said, is the weather in Western Canada.
“We’re pretty saturated in eastern Saskatchewan and in Manitoba, but I think once you get into Alberta, some of those canola-growing pockets are on the drier side,” he said. “I think if you take the average canola yield at 37 or 38 bu/acre, the supply-demand (balance) for the 2023-24 crop year gets pretty snug. We’re putting a bit of a risk premium here in the canola market because of the potential for lower yields.
“A third of the canola area needs some timely rains over the next week or you’ll see some significant yield drag.”
