Canada Markets

Market volatility is listed as the last of the six factors that DTN utilizes in the Six-Factor Approach to market analysis and one that receives little attention in this column. The attached chart indicates a recent spike in implied volatility (red line) when compared to the five-year average (blue line), signaling a growing nervousness in the canola market as of last week's close.

Implied volatility is an indication of the market's views surrounding the speed and magnitude of a potential price move, although does not indicate the direction of the move. Higher levels of implied volatility suggest an increased expectation for a wider range of trade along with the potential for a faster move, thus increasing overall risk and nervousness in the market.

This heightened level of implied volatility, at 25.44% as of the last weekly close, came at a time when canola had reached a fresh contract low of $392.80/mt, which is perhaps expected in a falling market, while the implied volatility in the soybean market was steady at 14.5%.

Once again, this perceived increased level in canola's implied volatility does not in any way indicate market direction. However, combine this with other factors, such as the widening futures spreads, a sign of commercial bearishness, and the fact that current futures trade is so far showing little resemblance to its five-year seasonal index -- which tends to see prices increase from early January through to the end of May -- then this situation may deserve close attention.

As mentioned in today's Plains and Prairies Closing Comments, canola lost ground in today's market despite a strong close in European rapeseed. Gains in palm and soybean oil, as well as Canadian dollar weakness, should be viewed negatively.

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

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