Canada Markets

Veg Oil Move Supportive for Canola

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The continuous active monthly soybean oil chart has reached an eight-month high this month, while poised to print a bullish outside month trading bar for the second time in five months. Momentum indicators continue to trend higher (second study), while the current net-long futures position held by investors (lower study)is poised to close at the highest level seen in ProphetX data going back to 1986.(DTN graphic by Nick Scalise)

Gains in competing vegetable oils should be viewed as supportive for canola. Since reaching a low on the continuous active monthly chart in August 2015, today's high in the benchmark June crude palm oil contract on the continuous active monthly chart represents a 45% increase.

With the end of the month near, crude palm oil is likely to close higher in four out of the past seven months after reaching the highest level in 24 months on the continuous active chart. Depending on this month's close, the monthly chart is currently showing a move above resistance of the 38.2% retracement of the February 2011 high to the August 2015 low, which could lead to a further test of the 50% retracement level which is also represented by the March 2014 monthly high.

Support for palm oil comes from expectations of reduced production potential in Indonesia and Malaysia given the strongest El Nino event since 1997/98. This is a trend that is expected by industry to continue through the year with inventories expected to tighten.

An interesting scenario is also appearing on the soybean oil continuous active monthly soybean oil chart. Soybean oil also reached a monthly low during the month of August 2015 and has since rallied 31% on the continuous active chart, while depending on what happens between now and the end of March, will likely close higher in five of the seven months since reaching its low.

Of interest on the attached monthly chart is that there has been two bullish outside month trading bars realized, or months where the trading bar trades both lower and then higher than the previous month, only to close higher. This was seen in November and very likely again this month.

Nearby resistance on this chart is seen at 35.29 cents/lb, the June 2015 high, while again at 38.96 cents, the 38.2% retracement of the move from the long-term downtrend from the April 2011 high to the August 2015 low, found at 38.96 cents.

The middle study indicates the continued upward trend in the stochastic momentum indicators, suggesting that the move to the upside could continue prior to reaching the over-bought region of the chart.

The lower study reflects the non-commercial or investor net futures position for soybean oil futures. In the latest week's data, as of March 15, the weekly net-long position held by this group increased by 74% to 96,925 contracts, a bullish move and the largest net-long held by this group since June 10 2015. At the same time, the attached monthly chart shows the potential for the monthly close to finish at the highest level seen in data going back to 1986 on ProphetX.


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