Canada Markets

The continuous weekly chart for soybean oil helps to explain the canola market weakness. Soybean oil futures rallied from a weekly low of 27.9 cents per pound in the first week of December 2008 to the weekly high of 60.41 cents in the week of April 11, 2011. Since then, prices have traded in a declining, right-angled triangle pattern, with support found at 47.99/lb, which represents the 38.2% retracement of the original uptrend.

During the week of June 24, prices closed below this support level for the first time since the week of Nov. 12, 2012, and only the second close below this support level since the week of Oct. 18, 2010.

Just four weeks later, prices have now broken through the support of the 50% retracement level of the same rally, at 44.16 cents/lb. While this support level was breached in Wednesday's trade, the nearby August contract ended the session losing 52 points to close at 44.26 cents, holding above support. Thursday's trade saw prices once again push below this support and close below it, ending the session at 43.81 cents, down 45 points. The next major support level will be the 61.8% retracement of the original rally, found at 40.32 cetns.

The lower study on the attached chart shows soybean oil's futures spreads all moving from a positive, bullish spread (above the dashed line which represents 0) to a bearish, carry market (below 0), where each successive futures month is trading higher than the one prior. These spreads actually become more bearish further out in time, with the lower, purple line representing the December/January spread, which closed at a bearish minus .17 cents. Only the red line, which represents the spread between the September and October soybean oil futures, remains inverted, with the spread being a mere 1 point, or .01 cents.

Pressure on the markets is coming from the prospects of favorable weather over the growing region in the United States, as well as rumors that the Chinese government has released three million metric tonnes of that country's state-owned supplies, which impacts export potential from the U.S.

The canola market is being beat up due to its higher oil content and reliance on oil markets. The canola/soybean spread has recently found a bottom of minus $58.74/mt on July 22 (canola trading below soybeans, valued in Canadian dollars), after slipping to a discount to soybeans in early July. Thursday's close was minus $19.15/mt, given the recent sharp rally lower in the soybean market. This compares to a positive $110.32/mt premium (canola trading over soybeans) on Feb. 14, 2013.

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

(ES)

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