Canada Markets

New-crop canola is finding itself in a consolidation phase while seeking direction, as the market participants digest both positive and negative factors impacting the markets.

One supportive factor hanging over the market is the lingering winter weather that will delay spring planting over the bulk of the prairies and northern states, while also leading to the potential for lost acres in extreme cases due to waterlogged soils or flooding. While it may be premature to discuss the impact to planting intentions, it is noted on a regular basis by the newswires.

Negative factors include the prospects for both Canadian canola and U.S. soybean production to rebound from 2012 production levels. The Canola Council of Canada is focusing on their mission of 15 million metric tonnes by 2015 and would not be opposed to seeing this happen two years early. Delayed corn plantings in the U.S. are viewed to potentially lead to a further surge in soybean acres. Combined with the record production from South America, global supplies are expected to increase to more manageable levels.

From the weekly low of $518 the week of Dec. 17 to the weekly high of $577.60/mt the week of Feb. 19, as seen on the attached chart, prices have retraced and breached the support of the 38.2% retracement level at $554.80 in today's trade. This may lead to a further test of the 50% retracement price of $547.80/mt and the 61.8% retracement level of $540.80/mt. As seen on the chart, the 50% retracement level at $547.80/mt has been thoroughly tested over the past five weeks.

Also acting as potential support is the upward-sloping trendline, shown in blue. Support may be found at $544.60/mt this week, should markets move to test this level.

The lower study, the weekly stochastic momentum indicator, is clearly indicating a gradual loss of momentum to the downside. As the most conclusive sign of momentum changes are signaled by cross-overs of the two indicator lines above 80 for a bearish signal, or below 20 for a bullish signal, the use of this momentum indicator has not clearly led to a clear bullish or bearish signal since a sell-signal was printed the week of April 9, 2012.

The breakout from this pattern will provide insight to the future direction of the market, although the pattern is most reliable when the breakout takes place between 50% and 75% of the horizontal distance from the base of the triangle to the apex.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

(AG)

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