Canada Markets

The continuous active weekly chart for canola highlights the current challenge for the canola market. This week marks the fourth consecutive week that trade has struggled with the $479.20 per metric tonne level, which marks the 33% retracement from the September 2012 weekly high of $654.60/mt to the recent February weekly low of $392.80/mt. This week also marks the second week of the last four where the weekly close was above the $479.20 resistance level, with today's July future closing $11.20/mt higher at $480.40/mt

Note that this general area of resistance had previously acted as support in the July through November period in 2013, with this support level failing convincingly in early December trade. In his book Technical Analysis of the Futures Markets by John Murphy, the human psychology surrounding a shift from a price support to price resistance (or vice versa) is explained in detail. In this case, significant buying below the $479.20/mt floor in the July through November period evolved into selling above the market since that time which contributes to the resistance faced today.

Today's close of $480.40/mt in the July contract marks the second week in the past four that the most active contract has achieved a close above this resistance level, but by no stretch is this a convincing close above resistance. Some commentary today suggests that today's low volume of 17,095 contracts may have exaggerated today's move, which saw an $11.20/mt gain in the July contract.

The lower study is of interest, indicating how the spread or carry between the old-crop July future and the new-crop November on the weekly chart has narrowed from a carry of $18/mt the week of Feb. 10 to a carry of $4/mt this week. This is a sign of growing commercial bullishness over the old crop situation as compared to the new crop situation. This seems an unusual move given the call for ending stocks to grow from 608,000 last year to an expected 3 mmt or higher this crop year, with logistical challenges further trapping grain on the prairies.

Perhaps this move is suggesting a surprise to come in Monday's Statistics Canada report of March 31 stocks? A Commodity News Service survey of trade participants is suggesting March 31 canola stocks will be reported between 8.1 and 8.7 mmt. This can be compared to the 12.597 mmt reported for Dec.31 and the 4.553 mmt reported for March 31 2013. While seed disappearance may be easy to calculate given the regular reporting from the Canadian Grain Commission and the Canadian Oilseed Processors Association, the wildcard could come from producer reporting of supplies on farm.

Producer chat on social media has expressed concern over the huge carryout forecasts being released, given that many have moved a significant amount of their own seed. In fact, some situations have seen June/July contracts called for early delivery, while companies have aggressively narrowed basis levels to buy seed in recent weeks. Perhaps the current trade, such as a test of resistance and narrowing spreads, is a signal the canola situation is not as bearish as has been portrayed over the winter.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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