Canola is on Cloud Nine
A small 2020 canola harvest combined with strong export demand has the canola market giving GameStop stock a run for its money.
The March futures contract closed at $716/ton on January 27th, coming off a $75/ton rally and nearing a 12-year-high. Notably, canola futures are in an inverse position with May contracts closing at $678. AKA, the market wants that canola, and it wants it now.
And Canadian Canola producers would be on edge to empty their bins, but… many already did.
The price was right: Producers were tempted to take advantage of strong fall prices only to see them spike further, pushing Canada’s year-to-date exports up nearly 33%.
So, where’s all the canola going?
China, Canada’s top purchaser of canola, continues to buy up the oilseeds, just at a reduced rate due to dockage-based restrictions. Canada says the barrier stems from Canada’s arrest of Huawei executive Meng Wanzhou, while China says “dangerous pests” are the reason for the restrictions.
And this helps: New markets in the United Arab Emirates and Europe have filled in much of the gap left by China’s restrictions.
Strong canola oil demand is also a factor, and domestic crush plants are racing to buy the commodity.
Where this goes: The canola rally isn’t necessarily over, and Canadian farmers are predicted to plant a 6% bigger canola crop this spring in response. As for the market – high prices tend to turn volatile, so producers may have to fasten their seatbelts.