Canada Markets

November Canola Shows Resilience in Friday's Trade

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
Connect with Cliff:
Volatility in the past three days resulted in the November canola contract trading over a significant $19.10/mt trading range, while ending above support and within its 10-week trading range. The middle study shows weekly momentum indicators slowly turning sideways, while the lower study would indicate growing concern as evidenced by a weak carry in the Nov/Jan spread while the Jan/Mar spread remains inverted. (DTN graphic by Nick Scalise)

Nobody knows what Statistics Canada will reveal in next Thursday's 2015 seeding intentions report. Industry will be hoping for the best, while many producers are suggesting that extended rotations, the high cost of inputs and the lower market prices could result in a scaling-back in planting intentions.

Despite the uncertainty surrounding new-crop canola acres, this week's new-crop canola trade shows a struggle between buyers and sellers in the November contract, with trade ranging from a high of $451.10/mt on Wednesday while hitting a low of $432/mt in overnight trade. Trade ended at $443.30/mt on Friday, in the upper one-half of this week's $19.10/mt range, while unchanged from last week.

November canola has traded within a $21.70/mt trading range for more than nine weeks before breaking through the lower end of the range at $439.20/mt with Thursday's $11.70/mt sell-off. The $439.20 level also reflects technical support, acting as the 38.2% retracement of the rally from the Dec. 1 weekly low of $404/mt to the March 2 weekly high of $460.90/mt. Thursday's close was the first daily close below this price level since Feb. 4.

P[L1] D[0x0] M[300x250] OOP[F] ADUNIT[] T[]

Overnight trade saw a further sell-off to the 50% retracement of the previously mentioned trend, with support tested at $432.40/mt before buyers took charge with prices bid back to the middle of the weekly range and to last week's close.

The middle study would suggest a bearish crossover of momentum indicators took place in the last week of February, while current trade has those indicators moving towards a sideways trend which could easily swing into a period of upward momentum should next week's report be poorly received.

The lower study would suggest that commercial traders continue to hold on to a bullish view of new-crop fundamentals, with the November/January spread trading at a weak carry of $1.20/mt (black line, January trading over the November) and the January/March spread closing at a $1/mt inverse (blue line, January trading over the March). Canola's forward curve chart (not shown), a line connecting a series of points representing the futures closing prices for consecutive contracts, would suggest a flat curve throughout the 2015/16 crop year. While the November closed at $443.30/mt, the July 2016 future closed at $444.70/mt, with the $1.40/mt difference, or carry, just a fraction of the cost of holding grain over this period. This is a sign of commercial concern or bullishness while movements in these spreads in upcoming trade will indicate whether the industry is becoming more or less bullish over time.

While new-crop canola will continue to be influenced by the bearishness surrounding expanded soybean acreage in the U.S., canola's own fundamentals could continue to be the driving force in this market.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

P[L2] D[728x90] M[320x50] OOP[F] ADUNIT[] T[]
P[R1] D[300x250] M[300x250] OOP[F] ADUNIT[] T[]
P[R2] D[300x250] M[320x50] OOP[F] ADUNIT[] T[]
DIM[1x3] LBL[] SEL[] IDX[] TMPL[standalone] T[]
P[R3] D[300x250] M[0x0] OOP[F] ADUNIT[] T[]

Cliff Jamieson