ICE Futures canola contracts ran into resistance in early June, as a bout of speculative long liquidation weighed on prices to start the month. While the market quickly regained most of its lost ground, where values go from here will be heavily dependent on weather conditions through the growing season.
Charts/funds: Speculative fund traders were holding a record-large net long position in canola futures of over 100,000 contracts as of May 27. Those bullish bets were getting unwieldy and resulted in a profit-taking correction. The July contract fell below psychological support at $700 per tonne on June 2 and was hard-pressed to move above that level in subsequent sessions. However, by the end of the week the bulls were back in the driver seat, rebuilding their longs with July canola well above the $700 mark.
Old/new crop spread: The old crop July contract was trading at a premium of roughly C$20 per tonne above the new crop November futures. That spread has seen some wide swings over the past few months, moving from a $12 carry in early March at the height of tariff worries to a high near $50 over in early May. Tight old crop supplies should be keeping some support in the front month ahead of its expiry, but the fact that the spread appears to be easing likely means the trade is already shifting attention to the new crop.
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Crush margins: The profitability of domestic crushers has come down over the past few months, at least on paper, with canola crush margins of only $64/tonne above the nearby futures as of June 5. That’s a $30/tonne drop in the span of a month and compares with crush margins at the same time a year ago of $148/tonne above the futures.
The crush margins represent the value of the oil and meal compared to the cost of the seed with currency exchange rates also factored in. Lower margins mean crushers make less money, which would reduce their buying interest. The softer margins is a sign that canola is likely overpriced at current levels.
Exports: Canada has exported 8.53 million tonnes of canola with two months left to go in the marketing year, according to Canadian Grain Commission data. That’s already above the 8.5 million-tonne target from Agriculture and Agri-Food Canada. Those strong exports may slow down, but they won’t halt completely and ending stocks will be very tight before the 2025 harvest comes in.
End users will be relying on that fresh influx of new crop supply, but yields are still very much up in the air, leaving the day-to-day trade highly susceptible to shifting weather outlooks — not to mention the underlying trade and tariff volatility.
