Canada Markets

Canola Breaks Higher This Week

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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November canola closed higher for the fifth straight session, while breaking out from the range traded during the past five weeks. Resistance remains at the contract's 50-day moving average, as well as the 50% retracement of the move from the June high to July low. The first study shows prices nearing overbought territory. The third study points to the bearish net-short position continuing to grow through Aug. 6. (DTN ProphetX chart)

After trading sideways within a $17.60/metric ton range during the past five weeks, November canola broke higher from the upper-end of the range with help from a move in competing oilseeds and vegetable oil markets.

Oilseed markets welcomed China's proposal this week to eliminate import tariffs on vegetable oils as that country makes plans to meet its needs while taming food inflation, with reports this week that food prices jumped 9.1% in China in July from the same month in 2018. Forecasts point to the need for increased vegetable oil imports for the 2019-20 crop year as the country pares soybean imports due to the African swine fever and falling soymeal demand.

In local currency terms, crude palm oil futures in Malaysia for October delivery increased by 5.7% this week, reaching its highest level in 15 weeks while forming a bullish gap on the weekly chart. Soybean oil futures for December delivery gained 4.3%, reaching its highest level in 16 weeks, while forming a bullish, outside-week trading bar on the weekly chart. November soybeans gained 2.7% over the week.

The enthusiasm failed to spill over into European rapeseed markets, with November rapeseed ending EUR1.5/mt lower on Friday, ending three consecutive days of gains. This contract posted a modest loss of EUR.25 over the week, its second consecutive weekly loss, despite an expected sharp decline in E.U. production. Euro strength against the U.S. dollar this week is partially behind this move.

As seen on the attached chart the November canola contract closed higher for the fifth straight session on Friday, while the move saw a breakout from the upper-end of the range traded over the past five weeks. The November gained $9.30/mt or 2% over the week, with noncommercial short-covering setting direction.

The blue histogram bars on the attached chart points to a growing net-short position held by noncommercial traders, while data released late Friday shows another increase in this bearish position to 83,829 contracts as of Aug. 6. This points to a growing net-short position for seven consecutive weeks, while a record net-short position has been recorded over four consecutive weeks, bearing in mind that this data was first published as of July 30 2018.

Friday's close was above the 38.2% retracement of the move from the June high to July low at $453.50/mt, which could pave the way for a further move to the 50% retracement at $457.40/mt. Friday's trade stalled at the contract's 50-day moving average at $455.90/mt, the first time since June 25 that this resistance has been challenged, which bears watching.


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