Canada Markets

New crop canola is charting a course on its own as bearish new-crop soybean data continues to weigh on new-crop prices. A much tighter fundamental situation for new-crop canola is evident when comparing the two charts, while the canola crop is facing challenges ranging from dryness to frost across the Prairies.

While November canola has remained within a $20.70 per metric ton trading range over the past 14 weeks, November soybeans printed a bearish signal Tuesday by trading below its Sept. 29 low today to reach a fresh contract low of $9.22 1/4/bu. The second study of the attached chart shows the spread between the two futures in Canadian dollars trending higher since April 1 (canola trading over soybeans) to today's close of $38.01/mt, the highest level seen between these two contracts since Oct. 8, with potential resistance on the spread chart found at the Oct. 6 high of $46.77/mt (canola over soybeans).

The lower two studies highlight the November/January spreads for canola and soybeans, with the trend in these spreads being a function of the actions of commercial traders who are closest to the physical commodity. The purple line in the lower study indicates a weakening outlook for new-crop canola, with the November/January spread breaking out of its range last week to reach a low of minus 7 cents (January over the November), with today's spread continuing to test support at this level.

The third study is the November/January canola spread, which narrowed $1/mt today to finish inverted, with the November contract closing $.20/mt above the January. This is a bullish signal and sign of a growing bullish sentiment among commercial traders.

While relative fundamentals and growing conditions will play a role in the direction of these two markets, movements in currency markets will also have an impact on relative prices. A further weakening in the loonie combined with U.S. dollar strength as seen today will result in further gains in canola relative to soybeans.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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