Tuesday's USDA report points to a growing oilseed problem in North America, with forecasts for both 2018-19 and 2019-20 ending stocks of United States soybeans increased to over 1 billion bushels. DTN Lead Analyst Todd Hultman stated in a June WASDE Report webinar that the only hope for improvement to the current fundamental outlook is a return to normalized trade with China, which is an all-too familiar situation facing the canola market.
As seen on the attached chart, new-crop November canola has ranged within a $16.60/metric ton range over the past 11 sessions, while the second study points to momentum indicators on the daily chart drifting sideways.
While not shown, the weekly chart points to consolidating trade for the second week, and weekly stochastics are also turning sideways while in the lower one-half of the neutral zone.
Moving average support is found at the contract's 50-day moving average at $463.20/mt along with the 20-day at $462.40/mt. Upside resistance is found at the 33% retracement of the move from the contract's high to the contract's low at $466.80/mt while a second level of resistance is found at the 38.2% retracement of the same move, calculated at $470.80/mt.
As seen on the lower-study of the chart, noncommercial traders have been slowly paring their bearish net-short position in canola futures, reported at 62,848 contracts net-short as of June 4. This group is surely taking note of the dry conditions on the Prairies but remain far from panicking.
The green line on the attached chart represents the November/January futures spread, calculated at minus $5.50/mt on Tuesday (January trading over the November). This spread weakened slightly on Tuesday, a sign of light, bearish commercial selling but still reflects roughly 45.6% of full carry, very much a neutral view of market fundamentals.
Concerns of dry conditions are offset by concerns tied to a lack of trade with China and growing stocks, leaving this market stuck in neutral and searching for direction.
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Cliff Jamieson can be reached at email@example.com
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