November canola rallied $8.50/mt on Tuesday on the highest daily total volume seen in three months of 37,311 contracts. The November reached an 18-day high of $470.90/mt, moving closer to the August high of $475.70/mt along with retracement resistance found at $476.50/mt, the 38.2% retracement of the move from the June contract high of $532/mt to the July low of $442.20/mt. The move saw a convincing close above the contract's 20-day and 50-day moving averages, the second time in eight sessions.
This move came on the day Statistics Canada's model-based production estimates pegged Canada's crop at 18.3 million metric tons on Tuesday, well above the 17.024 mmt reported on Aug. 23 based on the traditional survey method. The higher estimate may simply confirm what the trade already knew, as the majority of the pre-report estimates prior to the Aug. 23 release came in near the 18 mmt mark, although the range was reported to be from 15.9 mmt to 20 mmt in a Commodity News Service poll of trade sources.
Tuesday's elevated trade volume was a result of nervous noncommercial buying short-covering interest. Soybeans, soybean oil, palm oil and rapeseed futures also posted a similar move higher, with crude palm oil futures in Malaysia showing a bullish gap higher on Tuesday.
Despite bullish export sales reported by the USDA on Tuesday, rumors of better-than-expected yields realized in the early harvest weighed on soybeans, with market chatter already pointing to the potential for a bigger crop to be estimated by the USDA in the upcoming October supply and demand report.
Since July 18, the November canola price has ranged between a low of $442.20/mt and a high of $475.70/mt, a $33.50/mt range. Wednesday's close at $464.20/mt is in the upper 50% of that range. Support lies at the contract's 20-day moving average found at $460.70/mt and the 50-day at $461/mt, while trendline support on the short-term daily chart is found at $451.80/mt.
The actions of commercial traders should be viewed as a concern. The nearby Nov/Jan spread widened to minus $7.20/mt (black line, second study, January trading over the November), the weakest this spread has traded since Aug. 30 (minus $7.30/mt) with the weakest spread over the life of the contract shown at minus $7.90/mt on July 15. Another concern lies with basis. The average prairie basis, based on available internet bids, is close to $40/mt under the November which compares to the $19.57/mt under reported this time past year. Wednesday's Canadian Canola Board Margin Index was reported at $126.09/mt, well above the $45.12/mt reported this time last year, yet there are signs of some crushers widening their basis levels suggesting they are well supplied.
The canola market could find support in the next short while from:
1) The Premier of China is in Canada this week and perhaps the dockage issue which acts as a dark cloud over the market will be finally settled. Today's news talking about a possible extradition treaty between Canada and China is not received well by the Conservative opposition because of the country's poor human rights record, but could be one of the "strings" attached to helping sort out the canola trade issue.
2) National Weather Service maps look to place a further damper on prairie harvest with rainfall expected over the next seven days which could prove supportive. At some point in time, the delays experienced could lead to difficulties in shippers meeting commitments and basis levels could start to narrow.
3) While canola's seasonal pattern points to weakness over the month of September, DTN's Five-Year Seasonal Charts point to prices strengthening for five consecutive weeks into early November.
Editor's Note: Updates in this blog will next be seen Oct. 3.
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Cliff Jamieson can be reached at email@example.com
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