Canada Markets

Have we Seen Canola's Lows?

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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With one day left in the trading week, this week's trading bar appears as a cross, known as a doji in candlestick charting. This represents balance between buyers and sellers and can signal a change in direction. The lower study indicates weakening spreads throughout the crop year, a sign of growing commercial bearishness. (DTN graphic by Nick Scalise)

On average over the past five years, the canola market has reached a seasonal low in the current week, as indicated by DTN's Five-Year Seasonal Index chart. In 2013, the seasonal low came on Oct. 2 with an intra-day low of $476.10 per metric tonne, while the immediate rally after this low resulted in an increase to an intra-day high of $496.20/mt on Oct. 23, an increase of $20.10/mt. In 2012, the intra-day low fell on Oct. 3 at $577.80/mt and resulted in a subsequent rally of $44.20/mt to an intra-day high of $622/mt on Oct. 11.

Has the 2014 November future reached a bottom? Perhaps this week's weekly trading bar is a positive sign (as of Thursday's trade). As shown on the attached chart, the trading bar resembles a cross, with the open on Sunday evening at $396/mt and today's close at $396.30/mt, after trading over a $15/mt trading range between $388/mt and $403/mt.

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In candlestick charting, this trading bar is known as a doji. This can be viewed as indecision in the market or a level of harmony between buyers and sellers, although in many cases, can lead to a change in market direction. Given the market's downtrend, this trading bar can suggest a lack of conviction on the part of sellers which can allow the buyers or bulls to take charge.

Counter to the theory that the lows may be reached is the delayed harvest. Today's Saskatchewan Agriculture Crop Report indicated that 45% of the province's canola has been harvested, which compares to the five-year average of 55.2%. Harvest pressure may continue later into the fall than seen on average. As well, the U.S. soybean crop remains behind average in terms of maturity and harvest, which may see its seasonal low reached later than the first week October, as indicated by DTN's Five-Year Seasonal soybean chart.

Also of concern is the futures spreads as shown in the lower study of the attached chart. Commercial traders are becoming increasingly bearish given the widening futures spreads, with the most predominant moves taking place late in the crop year in the March/May spread (blue line) and the May/July spread (red line). This is a period of time when supplies have substantially declined yet there appears to be little concern over supply availability at this time.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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