Winnipeg Commodity Exchange Canola Prices Steady After 3-Month Decline

After dropping steadily for three months off a November peak, WCE canola futures prices traded in a relatively narrow range through much of March, with the May contract confined to a range between $347.50 and $368.40 per tonne. Trade sources suggest possible reasons for the temporary support in price levels may include improved crush margins and lower prices attracting buyers that may have been previously priced out of the market. Although prices stabilized during the month of March, they are still nearly $100.00 off of the $465.00 high that was established for the May contract on November 20, 2002. In spite of this price drop, canola futures prices remain over $30.00 per tonne above year-ago levels, with the May 2003 futures contract settling at $368.40 per tonne on March 31, 2003 while the May 2002 futures contract closed in March 2002 at $335.00 per tonne.

The WCE canola/CBOT soybean spread widened out to abnormally large levels during the run up to the canola futures price peak in November. Trade sources suggest that, partially due to unusually large premiums for canola over soybeans, some end users may have switched to the relatively less expensive soybeans, lowering the overall demand for canola. This may have contributed to the decline in canola futures prices, which came during a period of relatively stable soybean futures prices, and therefore contributed to narrowing the canola/soybean spread to more traditional levels.

New crop canola prices, represented by the November 2003 futures contract, have also dropped considerably in the past few months. After peaking at $394.50 on January 10, 2003, the November 2003 contract reached a low of $332.50 on March 11, 2003 before rebounding somewhat to close out the month at $352.10. Trade sources suggest that futures prices may show some volatility going forward as the market reacts to news of moisture conditions and planting intentions for canola in Western Canada and soybeans in the United States, along with updates on the status of the record-large South American soybean crop.