Canada Markets

Weekly Canadian Oilseed Processors Association data showed 130,383 metric tons of canola crushed in the week ending June 17, down 12.1% from the previous week and the lowest weekly crush in five-weeks. This volume is below the weekly volume of 141,329 mt needed this week to stay on pace to reach the 7.2-million-metric-ton crush target set by AAFC, although cumulative volumes are not far from the cumulative pace needed to reach the target.

Crushers have reacted swiftly to current market conditions, with the weekly crush capacity utilization pegged at 65.3%, down from 82.7% two weeks ago and the previous four-week average of 79%.

Canola crushers may be challenged with the combination of old-crop July canola futures up $30.90/mt so far this month, the Canadian dollar up 116 points so far this month (electronic trade) and soybean oil futures down 2.23 cents/lb in the past two weeks. Monthly U.S. soybean numbers released this week may have been viewed as bullish with a record May crush reported, although the downside of the report was soybean oil stocks reported at a level which was above expectations, placing further pressure on the market.

Buyers may be further squeezed in cash markets as producers hold tighter to unsold inventories of canola given the deteriorating state of the Prairie crop. Week 45 producer deliveries into licensed facilities remained high (as of the week ending June 14) at 342,700 mt, the highest level in nine weeks, although deliveries may soon show signs of slowing.

Friday's ICE Canadian Canola Board Margin Index, which is used as a proxy for canola crush returns, reported a nearby index at $45.55/mt. This is down $4.46/mt from Thursday, down $22.53/mt from a week ago and down $26.69 from last month. A year ago, this index was reported over $100/mt higher at $153.31/mt. Dow Jones commentary suggests current returns at levels not seen in 10 years.

While soybean markets posted bullish technical signals this week, the primary driver is the demand for soymeal, whose forward curve remains downward-sloping until May 2016, reflecting a series of inverted futures closes which points to a bullish view of market fundamentals by commercial traders. The soybean oil market, on the other hand, is upward-sloping until July 2016 (each consecutive futures close is higher than the one before it) signaling a bearish view of market fundamentals held by commercial traders. In addition, while noncommercial traders or investors continue to hold a net-long futures position of soybean oil, they pared this position by 30.5% as of June 16 data to 72,843 contracts, a sign of waning bullishness that could lead to further selling while adding further pressure to the market.

Canola's prospects on the Prairies are also disappointing, which could lead to a further move higher, with Fibonacci retracement theory suggesting a potential move to $521.30/mt on the November contract. On Thursday, Saskatchewan Agriculture reported the province's crop to be rated at 47% Good to Excellent, while on Friday, Alberta Agriculture pegged the province's crop at 32.1% Good to Excellent. No significant precipitation appears in the seven-day charts from the National Weather Service for the areas most in need. Early estimates suggest that Saskatchewan producers seeded 52.5% of the 2015 canola acres while Alberta producers seeded 30.9% of the country's total acreage, which indicates the impact to the overall crop.

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