Canada Markets

Despite the advancing harvest in Brazil which is suggested to be on the way to a record crop of some 90 million metric tonnes, there are some positive developments taking place in global vegetable oil markets which may lend some badly needed support for Canada's canola market.

While the non-commercial net-short position for soybean oil came close to record highs in January with a net-short position of 53,854 contracts reached as of Jan. 19 according to CFTC data, this position has since been pared to a net-short of 32,185 contracts, a sign that commercial traders or investors are becoming increasingly nervous and open to liquidating short positions to take profits and reduce risk. This is the lowest net-short position held in seven weeks.

While soymeal has been the primary driver behind the strength in the soybean market, March soybean oil futures have rallied since Jan. 31, pushing through the resistance of its 20-day and 50-day moving averages. The March has gained 9.3% since the January low to this morning's high in the March of 40.22 cents/lb with the late-morning market testing the contract's 100-day moving average at 40.120. Momentum on the secondary or weekly chart continues to reflect upward momentum, while spreads indicate a slow weakening in carry, or a less bearish outlook on the part of the commercial traders. Other supportive data came from National Oilseed Processors Association which reported the U.S. soybean crush for January at 156.9 mb, below the 165.4 mb crush in December and also well below average and analysts' expectations.

Palm oil futures traded in Malaysia, the second largest palm producer, are on a tear as of late, reaching a 17-month high in Tuesday's trade of 2,717 ringgits/mt or approximately $823 US. Reports suggest a focus on potential crop reductions due to recent dryness in Brazil, along with reports indicating that exports of CPO for the first 15 days of February increased 32% over the same period in 2013. As seen on the attached chart, CPO futures have rallied higher since reaching a contract low in July 2013.

Chart resistance may be found at a number of previous weekly highs in the 2,714 to 2,727 ringgits range, while a move above these levels may clear the way for a move to the 61.8% retracement level of the move from the July 2012 high to the July 2013 low at 2,799 ringgits/mt.

The canola market is well supported in Tuesday's trade, with late-morning trade in the March future at $407/mt, up $8.80/mt, after reaching a new contract low of $392.80/mt in Thursday's trade. Speculative short-covering is behind today's move, while Canadian dollar strength is capping today's potential move. The overall oilseed and vegetable oil sector will continue to watch weather developments in the South American crop as well as any potential logistical issues from that country which may hamper the ability to satisfy the demand in China.

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

(ES)

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