Canada Markets

January Canola Breaks Below Support

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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January canola broke out of a narrow range traded in recent days to take out lows in trade that range back to Sept. 13. The lower-study shows the move was the result of high volume trade, with the January volume the highest seen in over a month. The lines on the second study point to weakening spreads through the balance of the crop year. (DTN ProphetX chart)

January canola closed $4.50/metric ton lower at $452.10/metric tons on Monday, likely the result of commercial and noncommercial selling, while tied to weakness seen across the global oilseed and vegetable oil markets.

This move follows four consecutive days of trade that saw price hold within a narrow $2.90/mt trading range, with retracement support at $456.80/mt preventing a further move lower. Monday's move resulted in an extended move below this support, which is the 61.8% retracement of the move from the contract's July low to October high, while also plunged below the 67% retracement of this same move at $455.10/mt on Monday.

The next potential support level to be tested is psychological support at $450/mt, while a move below this could result in a further move to the contract's low at $444.20/mt. A look at the continuous active chart shows further support from previous weekly lows at $437/mt, then again at $427.50/mt.

The middle study shows futures spreads weakening throughout the crop year, with the nearby Jan/March spread weakening to minus $9.20/mt. While not shown, delayed CFTC data shows noncommercial traders paring their bearish net-short position in canola for a third straight week as of Nov. 26 but continue to hold a significant bearish net-short of 69,536 contracts.

Monday's move was the result of high volume as seen in the lower study, with ProphetX reporting January volume at 16,103 contracts, a daily volume last seen on Oct 31.

Reports over this week include Wednesday's Bank of Canada rate decision, while Statistics Canada will release revised 2019 production estimates on Friday, which bears watching.

Vancouver cash is reported to trade at $18/mt over the January contract, which on Monday, represents cash trade at $470/mt track Vancouver. By coincidence, this represents the mid-point of the $455/mt to $480/mt range reported by AAFC that represents the expected range that the average track Vancouver price will fall into for 2019-20, as released in the November supply and demand estimates.

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