Canada Markets

New crop canola futures appear to show increasing concerns surrounding the potential for the new crop, as excessive rain has not only reduced acres to some extent but has also take its toll on the seeded crop while continued cool weather has slowed plant development across the Prairies. So how are traders reacting and what signals is the market telling us?

First we'll look at November canola's move relative to soybeans. November soybeans rallied from a low on January 31 to a high reached on May 22 before increased non-commercial selling weighed on the market and forced prices to lower levels. The new-crop market found support from the 38.2% retracement of the almost four-month uptrend at $12.06/bu.

November canola, on the other hand, reached its low later on February 13 and 14, while reaching its higher earlier as well on April 9 at $500.70/mt. The market then proceeded to retrace as much as 77% of the original uptrend, although has since relied heavily on a range of support between $454.30/mt and $457.90/mt, the 61.8% and the 67% retracement levels of the original move higher.

From this, one could conclude that the canola market has been overdone to the downside relative to soybeans since reaching their respective 2014 highs, while the canola market may be supported as a result.

Over the past 21 days, November canola has traded in a range between a high of $472.80/mt and a low of $447.50/mt, a spread of $25.30/mt. Today's close at $469/mt is near the upper end of the trading range, while today's high of $471.30/mt came within $1.50/mt of testing the May 29 high, also signaling growing apprehension.

The lower study reflects the futures spreads. While the Nov/Jan spread (blue line) has widened slightly in recent days to minus $4/mt in today's market (January over the November), this represents roughly 37% of full carry from the November to the January, which does not reflect the bearish situation one would expect given the estimates for a significant carry-out at the end of the 2013/14 crop year to be added to the new crop. The two other spreads are the Jan/March (green line) and the March/May (black line) which both closed at a spread of minus $.50/mt in today's trade, which also reflects a weak carry and a growing bullishness seen later in the crop year, while determined by commercial activity in the forward markets.

Last of all is basis. Today's average Prairie-wide basis for November delivery, based on available internet quotes, was calculated at $34.78/mt under the November. This has improved from the $48.82/mt basis calculated at the beginning of June while earlier in the year this average was close to $60/mt under.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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