ABB's cash old season canola price, delivered port, dropped from $480/t on July 6 to $452/t on Monday, while new season bids fell from $510/t to $482/t in the same period.

The fall was driven by a sharp decline on the leading canola futures exchange, Winnipeg, which saw canola prices fall by around $CA50/t for November '09 canola futures, or more than 10pc of the value.

The falling values were attributed to the exit of the funds from canola futures, declining oil prices and the potential for a large quantity of soybeans to hit the market.

"There are some quite valid reasons why the canola market stepped back," said Agvise managing director Brett Stevenson.

"Basically, there is some belief that the total demand for oils is easing, which is putting downward pressure on the market, and there is also the perception on how the total soybean crop is travelling, which is also weighing on the market.

"Lastly, we also have a situation where some of the funds are reducing their positions in reaction to the potential for further regulation within the industry, which is also having an impact on values."

Crude oil values declined $US10 a barrel last week, which is also bad news for the commodity.

But ProFarmer believes the drop has more to do with fund volatility than physical factors.

In his weekly newsletter, ProFarmer’s Richard Koch highlights the fact that parts of the Canadian plains are still in high drought risk conditions, despite a little rain last week.

And Europe has cut its estimates again, which Mr Kochi said would cancel out any improvements in soybeans.

He said he suspected the move was more to do with funds holding long positions, rather than any physical factors.

"The big culprit this week was again likely the fund longs," he said.

Mr Koch said a theory that the drop was due to a rumour that the Chinese proposed to release soybean reserves and remain out of the market until September was unlikely to be on the money given that production of their local crop is not yet assured.