Canada Markets

The canola market, along with other oilseeds and vegetable oil markets, is currently closely tied to the soybean oil futures. While recent highs in the soymeal futures have come close to testing the March contract high reached in December of $440.40/ton, soybean oil futures have been trading sideways while holding above the contract low of 37.42 cents/lb, reached on January 8.

The March canola contract shares a number of similarities with the March soybean oil chart, also trading sideways above its recent contract low of $421/mt reached on January 16, while also failing to overcome resistance at its 20-day moving average of $435.20/mt.

While canola data is not available from the Commodity Futures Trading Commission, we can glean insight into how traders view the soybean oil market through the positions reported weekly by the CFTC, as seen on the attached chart. Last week's data from the CFTC as of Jan. 14 indicates the net-short position held by non-commercial traders or investors of 53,366 contracts, a huge jump of 15,025 contracts from the 38,341 net-short position held the previous week. This is close to a test of the record net-short position held as of Aug. 4, 2013 at 55,087 contracts.

The investment community is betting heavily on lower soybean oil prices, as clearly seen by their actions in the market. Meanwhile, it is safe to assume that to a large degree, the canola market will continue to face the impact of this selling activity. It is the demand for soymeal which is supporting the soybean market, while an aggressive pace of crush, recently reported in the U.S. to be higher than expected in December, is adding further pressure on the soybean oil market as stocks grow. The most recent January USDA supply and demand report indicates a 2.6% growth in soybean oil ending stocks to .79 mmt in 2013/14.

The black line on the attached chart represents the continuous weekly soybean oil price, which clearly shows the impact of the flows of investor funds as they move from a net long to a net short position. This analysis represents one of the six factors studied in DTN's Six-Factor approach to market analysis.

In news related to this topic, Euronext, which is a subsidiary of InercontinentalExchange Group (ICE), announced today that it will launch both rapeseed oil and rapeseed meal futures and options as early as the last half of 2014. The release of these products will join the existing Paris rapeseed contract which has been in place since 1994. The goal is to reduce volatility faced in the cross-hedge of these products within the soybean complex.

While Euronext's hope is that both Canadian and Australian traders will utilize these products, it is far too early to judge how the trade in these countries will greet the new contracts.

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

(ES)

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