Canada Markets

Thursday's bullish canola report from Statistics Canada which pegged the 2014 production at 13.9 million metric tonnes, down 4 million metric tonnes from last year and below trade expectations according to a Commodity News Service poll was overshadowed by the weakness in the global vegetable oil trade.

Malaysian crude palm oil had a brutal day Friday and an even worse week. The November contract lost 1.7% in today's trade, shed 4.4% this week and ended the week 28.6% below its recent March high. The continuous chart indicates palm oil trading at its lowest level since July 2009.

Commentary suggests growing concerns over the potential of a boost in upcoming production levels as well as weakening demand in China. Yesterday's official import data from China reports a year-over-year drop of palm oil imports from January through July of .07%.

Over the course of the week, soybean oil trade for December fell 1.8% and reached a fresh contract low on Friday, while also trading at the lowest level seen since July 2009.

While futures spreads are just one of six factors followed by DTN in their six-factor approach, they can provide a relevant signal as to the sentiments of commercial traders whose activity affects the spreads. The attached chart shows the spreads in a downtrend. The lower black line represents the November/January spread, which widened $.70/mt this week to minus $5.30/mt (January trading above the November). The blue line represents the January/March spread, which widened $2.80/mt this week to close at minus $4.80/mt.

The two upper lines are showing an interesting move from a bullish inverted market to a carry market (or just about). The red line represents the March/May spread, which widened $2.80/mt this week to close at minus $.20 (May trading over the March), a spread that inverted on June 26 and reached a high of plus $4/mt the week of July 14. The upper brown line represents the May/July spread which widened $2.80/mt today to close at a weak inverse of $.20/mt (May trading over the July).

The commercial side of the industry may be telling us they don't agree with the Statistics Canada numbers released this week, perhaps 2013/14 carryout numbers are greater than expected or perhaps the weaker spreads could be representative of a weaker demand structure as seen across the overall vegetable oil markets.

Canadian Oilseed Producers Association data for the week ending August 20 reported a small weekly crush of 123,152 mt, the lowest weekly crush in nine weeks, with weekly crush capacity utilization at only 71.3%.

The average cash basis across the prairies has also widened in the past week, moving from $12.92/mt under the November a week ago to $15.60/mt under today for spot delivery.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

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