Canada Markets

The canola market received a shot in the arm Monday as concerns mount over the prospects for what is to be a record U.S. soybean crop. August is the month that can make-or-break the soybean crop, with Monday's DTN market weather factors reported as neutral to bullish for soybeans as the current dry trend in the Midwest appears set to linger into the month of August.

Mixed signals came from Monday's USDA Crop Progress report from the U.S., with 38% of the crop setting pods as compared to 31% which is the five-year average, while the good-to-excellent rating has slipped 2% from the previous week to 71%, although remains well ahead of the 63% good-to-excellent rating reported this time last year.

Combine this uncertainty with the concerns surrounding the state of the canola crop given weather-related challenges faced on the prairies along with the fact that canola finished last week's trade at roughly the lower 25% of the trading range traded over the past five years and the story needed for a move higher is perhaps unfolding.

Momentum indicators on both the daily chart, as shown in the middle study of the attached chart, as well as on the weekly chart (not shown) have or are in the process of creating a bullish crossover of indicators while in oversold territory while below 20%.

Canola buyers are also narrowing basis levels in order to entice product into the system. The spot cash basis calculated from a selection of facility bids across the prairies works out to $18/mt under the November Monday, as compared to $23.95/mt under at the beginning of the month. Over the same timeframe, the November delivery basis has narrowed from $31.08/mt under to $12/mt under, indicating growing concerns further out in the crop year.

While the November/January spread widened Monday to a weak carry of minus $4/mt, trade in this period is heavily influenced by the significant stocks carried into the next crop year. Further out in the crop year (not shown), the Jan/March spread narrowed slightly today to end at an even weaker carry of minus $.60/mt while the March/May ended at a bullish inverse of $3.50/mt (March trading over the May).

A continued move higher would represent a counter-seasonal trend, with the five-year seasonal trend pointing to a move lower over the first three weeks of August, although this is an indication of what has happened over the past and not necessarily a predictor of how future markets will react.

Things to watch this week are 1) the CWB crop tour, with feedback posted on twitter under the hash-tags #cnatour14 or #croptour14, with a final estimated yield to be released on Thursday 2) a test of the November contract's 20-day moving average at $447.50 and retracement resistance at $452.70/mt and 3) weather, both on the prairies and in the U.S. Midwest.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

© Copyright 2014 DTN/The Progressive Farmer. All rights reserved.