Canada Markets

It's interesting to see how the market has responded since Statistics Canada announced that the 2013 canola crop size is now viewed as being 18 million metric tonnes, up from the 16 mmt reported in October. This was equal to the highest pre-report trade estimate floated, according to a Dow Jones report. Some media reports are already suggesting that the crop size is actually even larger, as producers may choose to indicate conservative numbers in hopes of helping support the market.

Wednesday's trade was nowhere close to a total wreck as one would anticipate, with losses pared after the January contract reached a $476.60/mt low before bouncing back to close above support at $480.40/mt, down $2/mt for the day. The $476.60/mt low represents a fresh contract low for the January contract. This was no ordinary day of trade, with the ICE Canada Exchange reporting a record one-day volume of 51,805 contracts, which is above the previous record of 49,165 contracts set on June 9, 2010. Total open interest in canola rose by 9,000 contracts to 217,146 contracts, the highest level in over a year.

Thursday's trade perhaps told a similar story. Trade retreated below support to a low of $478/mt, while roaring $1.90 near the close to close up 60 cents/mt at $481/mt. Thursday's trade was well within the range of Wednesday's $9.20/mt trading range, which is referred to as an inside day or inside bar and reflects harmony between buyers and sellers.

The attached chart indicates how the $480/mt support level is arrived at. This price level reflects the 61.8% retracement of the move from the December 2008 low of $354.10/mt to the $683.90/mt July 2012 high. Prices have largely traded over this level over the past 11 weeks. Should prices fail to hold over the $480/mt level, the next test will be the 67% retracement of the same rally at $462.90/mt.

The lack of reaction in the market is a sign that the crop size was already factored into the market. The nearby January/March spread has widened from minus $9.90/mt on Tuesday to minus $10.10 on Wednesday and closed unchanged in Thursday's session, a muted reaction from the commercial trade.

Fortunately for the crop, demand is appearing on both sides of the market. The Canadian Canola Board Margin Index, a proxy for crush returns, was reported at $125.87/mt Thursday, up from $87.81/mt a month ago and almost double the $63.02/mt reported a year ago. In addition, the Winnipeg ICE Exchange reported the Vancouver cash basis to have narrowed Thursday from $18/mt over the January to $25/mt over the January future.

While the current situation does not point toward any form of rally soon, it is encouraging to see prices continue to stabilize despite the seemingly bearish news that has been released.

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

(ES)

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