November 2020 canola closed $3.30/metric ton lower on Tuesday to $493.30/mt, while trade remains above the lows reached over the past four weeks. Two recent lows on the weekly chart seen at $492.20/mt, reached in the weeks of Dec. 23 and Dec. 30, remain the next test given a further move lower.
This represents a sharp recovery after reaching a $437/mt low on the continuous November chart on July 5, while the November 2020 chart (not shown) points to a Sept. 9 low of $467.10/mt.
Over the past four weeks, trade has reached a daily high ranging from $499/mt to $500.10/mt on four sessions, but struggled to sustain these gains.
It is interesting to note on the attached continuous November chart, which ties one November contract to another, a similar period of consolidation was experienced one year ago, as indicated by the blue ellipse shown on the attached chart. From the week of Nov. 11, 2018 to the week of Feb. 19, 2019, a 15-week period, trade ranged over a narrow $13.90/mt range. During this period, there were five daily closes above $500/mt, with the highest level traded at $502.50/mt.
This period of consolidation in 2018-19 was prior to news breaking of the Chinese ban on Canadian canola that was reported in early March, which signals a full retracement to where we were without any resolution on this issue.
Also interesting is the year-over-year change in fundamentals. The December 2018 Agriculture and Agri-Food Canada (AAFC) supply and demand tables included a forecast for 2018-19 ending stocks of 2.4 million metric tons or 11.7% of total demand, with exports forecast at 11 mmt. The December 2019 report points to estimated stocks of 3.5 mmt for 2019-20, representing 18.1% of total demand, with exports forecast at 9.1 mmt. AAFC's first look at 2020-21 should be released any day now.
The point is, the most recent forecast for the current year's ending stocks is 1.1 mmt higher than shown a year ago, yet both years show consolidation just below $500/mt in new crop trade for this period.
The first study shows caution on both the commercial side of the trade (red bars), who are paring their bullish net-long position, along with noncommercial traders (blue bars), who are paring their bearish net-short position, both moving towards a more neutral position based on CFTC data.
The lower study shows recent weakness in the Nov20/Jan21 futures spread to minus $5.20/mt, which signals a neutral to modestly bearish view of market fundamentals based on the actions of new-crop commercial trade.
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Cliff Jamieson can be reached at firstname.lastname@example.org
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