Canada Markets

The old-crop canola market has faced a tough couple of days, ending $6.60/mt lower on Monday and $21.50/mt lower on Tuesday. As seen on the attached chart, a number of support levels have been breached, namely:

-- the 200-day moving average, breached on Monday (olive line)

-- the contract's 20-day moving average, also breached on Monday (green line)

-- the 50-day moving average, breached on Tuesday (purple line)

-- the 38.2% retracement of the move from the February low to the May high (horizontal red line)

-- trendline support drawn from the February 13 low (upward-sloping blue line) and

-- the contract's 100-day moving average (blue line).

The saving grace in today's market was the 50% Fibonacci retracement line at $458.60/mt, which is indicated by the horizontal green line. Both commercial and non-commercial selling is weighing on this market.

The weakness described above also saw the recent July/November spread widen from a bullish $1.20/mt inverse, where the July future traded above the November, to a shift back to a carry market in today's trade of $2.70/mt, with the November trading back above the July. This may still not be reflective of the true fundamental outlook for this market, with ending stocks expected to leap to 3 million metric tonnes or higher.

A carry of $2.70/mt is approximately 16% of full carrying costs between the July and November contracts, with suggestions already made that the carry could grow to 80% of full carry or a $13 to $14 carry or spread, more reflective of this bearish situation. The argument for selling old-crop as opposed to carrying stocks may be building. Yesterday's average Prairie-wide basis calculation indicated the spot cash basis at $35.84/mt under the July, while the basis for forward delivery in July is $2.29/mt wider at $38.14/mt under the July. Barring any issues with new-crop, basis for old-crop delivery may continue to widen as end users will be more than comfortable given the available supplies, with the weakest prices offered later in the summer as we near new crop.

The test will be whether the $458.60/mt level can continue to hold, while a breach of this level may lead to a test of the $447.90/mt level, which is the 61.8% retracement level of the rally discussed.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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