Canada Markets

Canola Market Fails to Match Enthusiasm in Soybean Trade

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Despite soybean futures reaching fresh highs in the short-term uptrend on Wednesday, old-crop May canola struggles in sideways trade after recently failing to test the contract's 200-day moving average. The middle study shows stochastic momentum indicators holding near overbought territory, while the lower study shows the May/July spread mostly drifting sideways. (DTN graphic by Scott Kemper)

The canola market has failed to follow the lead of the continued move higher seen in soybeans, while remaining in range-bound trade near technical resistance. May canola ended a four-session downturn in Wednesday's trade, while soybeans have posted solid gains over each of the past four sessions, gaining 51 1/4 cents to reach the highest level seen in just over eight months.

As seen on the attached chart, the recent May canola high of $483.50 per metric ton reached on April 6 failed to test resistance at the contract's 200-day moving average just $1/mt higher at $484.50/mt. After trading sideways between the support of the contract's 100-day moving average and resistance of the 200-day moving average for six consecutive sessions, Tuesday's move resulted in a $5.70/mt move lower, which was followed by a $5.80/mt rally on Wednesday.

The middle study shows a bearish crossover of stochastic momentum indicators while in ove-bought territory on May 7, although the trend lower looks to be trying to stabilize. The lower study on the attached chart shows a sideways trend in the May/July spread which closed at a $5.20/mt carry today (July over the May), suggesting a neutral approach by commercial traders with the current spread or carry close to 50% of the total cost of carry.

The move is partially influenced by strength in the Canadian dollar, which has reached a fresh high of $0.7848 CAD/USD on Wednesday before facing selling pressure, while has gained 240 basis points in the previous three sessions. Last week's CFTC data as of April 5 shows investors holding a net-long position in Canadian dollar futures of 97 contracts, the first time this group has held a net-long position since May 2015. The recent move higher in crude oil, which reached its highest level seen since Dec. 7 on Wednesday, has led to recent buying interest in the Canadian dollar.

The benchmark June Malaysian crude palm oil contract closed higher on Wednesday after six consecutive losing sessions, after the April 5 high fell short of testing the March high, while technical selling took over on April 6, resulting in a bearish gap lower to open the session. Wednesday's close is above the support of the 38.2% retracement of the move from the Jan. 29 low to the March 29 high. Reports this week show March palm production above expectations and 16.9% higher than realized in February, which has increased concerns that overall inventories will be seen to increase. At the same time, official import data from China shows edible oil imports at 1.45 million metric tons in the January through March period, up 38% from last year, which is bound to be supportive for oilseed and vegetable oil markets.

Since reaching an April 4 high, the May soybean oil contract has closed lower in five of seven sessions while reaching an 11-day low in Tuesday's trade. Wednesday's close was higher for the first time in five sessions, holding above the contract's 20-day moving average.

Support for canola may be found at the contract's 100-day moving average at $478.90/mt and the 20-day moving average at $475.40/mt. Potential resistance remains at psychological resistance at $480/mt, last week's high at $483.50/mt and the 200-day at $484.10/mt.

Agriculture and Agri-Food Canada has updated their supply and demand estimates this month by increasing expected canola exports by 500,000 mt to 10 mmt, which would be a new record movement for the crop. Ending stocks are estimated at 1.350 mmt, 7.4% of annual demand and a three-year low.

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