Canada Markets

DTN's Five-Year Seasonal Chart suggests that canola prices have moved sideways in December on average over the past five years. That's exactly what we've seen this week with a weekly gain of $.90/mt as canola has traded sideways this week while continuing to knock on the door of chart resistance at $438.80/mt.

This resistance level is the 33% retracement of the move from the April high of $513.80/mt to the September low of $401.80/mt. This price level has resulted in troublesome technical resistance for the March price, which tested and failed to move above this resistance on Oct. 31, Nov. 3, Nov. 12, Dec. 18 and then again Friday, Dec. 19.

For now, canola prices have stalled at the top end of its recent range and may need further bullish news to push prices higher. The middle study shows stochastic momentum indicators in over-bought territory while trending sideways. This leaves prices vulnerable to a sudden change in direction.

Supportive trade is seen coming from the commercial side of the business, as shown by the spread chart in the lower study of the attached chart. The last of the three spreads shown, the May/July spread as shown by the red line, moved into inverted territory Friday, with the May closing at a $.40/mt premium to the July.

Despite producers holding tight to canola given the season and a desire for improved pricing, year-to-date disappearance is ahead of the pace required to meet the current targets set by Agriculture and Agri Food Canada in their November supply and demand report. Exports are roughly 175,000 mt ahead of the steady pace needed to achieve the current 8.4 mmt export target, while the domestic crush is roughly 46,000 mt behind the cumulative pace needed to reach the 7.1 mmt crush target.

While canola will be soon be entering its period of seasonal strength in January, prospects for higher prices may be limited. The potential for a record soybean harvest in Brazil will continue to weigh on the market, while canola's own fundamentals may eventually drag down prices. Note that since AAFC's latest supply and demand release in November, Stats Canada has increased production by approximately 1.5 mmt so an ending stocks figure close to last year's 2.4 mmt for 2014/15 is realistic which could continue to limit a move higher while reports are currently suggesting even more soybeans will be seeded in 2015.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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