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Who Invests and Trades in Canola oil Futures?


Canola oil futures offer market participants a way to forward price their contracts, well before the delivery of canola oil is needed. This lets them hedge their risk and regain control over their canola oil investments. Producers and Marketers of canola oil can minimize the risk of price fluctuations in the canola oil market by using a short hedge, which locks in a fixed selling price for the canola oil that they produce. Thus futures allow them to get the specified amount in the contract, even if prices fall in the future. Consumers of canola oil, like chocolate companies, can use a long hedge to set a fixed purchase price for a specified quantity of canola oil as per their need.

Canola oil futures are also traded by speculators. Speculators buy and sell canola oil futures to take advantage of price movements. Speculators have no vested interest in the underlying asset, that is, they will neither deliver canola oil nor take delivery for canola oil. They trade in and out of canola oil futures only based on speculations about the price fluctuations of canola oil over the trading period. They take on the price risk that hedgers are trying to avoid, because they hope to profit from the price movements. Canola oil speculators buy canola oil futures if they believe that the price of canola oil will go up, and sell canola oil futures if they believe that the price of canola oil will go down. Canola oil speculators include non-farm investors, trading companies or individuals.

Canola Oil Futures Contracts
Canola trades on the ICE under the symbol “RS” where each contract is for 20 tons, quoted in Canadian dollars. The minimum price movement is of $0.10/ton. The contract is for delivery months of January (F), March (H), July (N) and November (X). The contract is fulfilled by physical delivery of canola oil meeting primary elevator grade standards set forth by the Canadian Grain Commission (CGC).

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