November Canola Moves Closer to Contract High
Late last week, Agriculture and Agri-Food Canada released its first forecast for the 2022-23 crop year. Estimates for canola include a 3.3% drop in seeded acres, while yield is forecast to increase by 65% to 41.2 bushels per acre, which is close to canola's 20-year trendline yield of 41.3 bpa. It is interesting to note that a Jan. 25 Farm Credit Canada webinar pointed to an expected 4.8% increase in canola acres in 2022. Forecasts will vary based on expectations of fertilizer availability, producer willingness to absorb the high cost of inputs relative to historical levels and interpretations of the ongoing drought conditions on the Prairies.
Agriculture and Agri-Food Canada's forecast shows a 60.4% increase in production to 20.2 million metric tons, while crop year supplies are to rebound by a 43.7% increase to 20.850 mmt. This allows industry to meet a significant surge in demand, with AAFC forecasting exports to rise by 85% to 10 mmt and domestic use to increase by 17.6% to 10 mmt. Stocks are forecast to rise by 200,000 metric tons to 700,000 mt, which would be the first year-over-year increase in four years, while well below the five-year average of 2.552 mmt.
Despite the significant sell-off of old-crop futures on Jan. 24, the new-crop November contract closed higher for a fifth day, increasing by $5/mt for the contract's fifth consecutive higher close. Jan. 25 trade saw the new-crop contract reach a higher-high in its short-term uptrend for a fifth consecutive session, ending $1.60/mt higher at $834/mt. Today's close is just $6.50/mt below the contract high, while it is interesting to note the daily close near the upper-end of the daily range for five consecutive sessions.
The brown line on the first study bears watching. The new-crop Nov22/Jan23 futures spread reached $5.20/mt early this month, closed as high as $4.80/mt late last week while closing at $1/mt on Tuesday. Granted, this continues to reflect a bullish inverse, but less bullish than seen last week. During the past five years on this date, the new-crop Nov/Jan spread traded at a carry each year, with the five-year average calculated at minus $4.20/mt, or a $4.20/mt carry.
While not shown, the stochastic momentum indicators on the daily chart are well into overbought territory, while on the weekly chart are on the verge of entering overbought territory. This may act to slow speculative buying. It is also interesting to note in the lower study that the daily volume in today's move was the lowest seen in four sessions, with the buying interest slowly waning.
While there is a great deal of time for the new-crop story to play out, the $840.50/mt contract high may prove a make-or-break level for this contract in the near future.
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Cliff Jamieson can be reached at firstname.lastname@example.org
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