Canola Strength Showing No signs of Fading

Canola futures have started the New Year on a firm footing, with little sign the ongoing strength will end anytime soon.

While canola may look overpriced by some metrics, analyst Mike Jubinville of MarketsFarm said the high prices remain necessary to ration demand as canola trades relative to other markets.

"Is canola expensive? Yes, but everything is expensive," he said.

Jubinville said he expects domestic processors will continue to keep canola well supported in order to secure supplies and thwart export movement. In addition, while traditional crush margin calculations based off of soyoil and meal values indicate that canola crushers should be losing money at current prices, he added the real crush margin is actually much stronger with canola oil trading at record premiums over soyoil.

"I think canola has disconnected from soybeans."

Meanwhile, European rapeseed and Malaysian palm oil are both trading at highs of their own, while energy markets have also shown strength. The charts look supportive for canola, with the March futures holding well above its major moving averages with no overbought signals from a technical standpoint, Jubinville said.

"We'll have corrections and they could be sharp ones. . . but it doesn't mean this is over," he said, adding "the trend is still up."

The nearby March canola contract closed Wednesday at $1,023/tonne, with the May contract also ending slightly above the $1,000 mark.