Canada Markets

They say that markets climb a wall of worry. This may be the case for March canola which posted a reluctant close above resistance on Thursday followed by a small move higher on Friday.

The attached chart shows the March daily contract moving above resistance of the contract's 200-day moving average on each of the first three days this week although failed to close above this level as well as the psychological resistance at $450 per metric tonne. Thursday's trade resulted in the first close above the 200-day moving average since mid-May, while Friday saw a further gain of $.50/mt. In total, the March contract gained $9.20/mt this week.

Should this move higher continue, the path may be cleared for a further move to resistance ranging from $457.80/mt to $459.70/mt. The $457.80/mt price level represents the 50% retracement of the move from the April high to the September low on the March contract. The latter price level of $459.70/mt represents the 61.8% retracement of the move from the May high to the September low on the continuous active daily chart.

While canola's futures spreads (lower study) continue to reflect a bullish inverse with the March trading over the May (blue line) and the May trading over the July (red line), the nearby Mar/May spread widened from a $6.90/mt inverse on Monday to a $2.10/mt inverse on Thursday only to recover to a $3.60/mt inverse on Friday with the return of commercial buying interest.

The canola market is entering its period of seasonal strength, with a slightly more than 8% increase in price realized on average over the past five years from now until the seasonal high is reached in June, according to DTN's Five-Year Seasonal Index chart.

As noted by DTN Senior Analyst Darin Newsom, soybean spreads are telling a much different story than one would interpret from readily available bearish fundamental data, which includes record crops in the United States as well as the potential for the same to occur in Brazil. Is the canola market suggesting the same? The March contract has gained $26.50/mt since the first week in December, despite Statistics Canada finding an additional 1.6 mmt in this year's production.

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

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