Canada Markets

Delayed Harvest and Global Rally Pushes Canola Higher

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The November canola contract posted a solid gain of $7.40/metric ton on Friday, finishing above its 200-day moving average (red line) and above the 50% retracement of the move from the June high to the July low (green horizontal line). The November price is in overbought territory on the stochastic chart (second study), while the third study points to strengthening spreads, with the May/July now in inverse territory signaling bullish commercial behavior. Recent moves have taken place on high volume, as seen on the fourth study, with 62,363 contracts trading on Thursday and an estimated 39,494 contracts on Friday. (DTN graphic by Nick Scalise)

Since reaching a low of $442.20/metric ton July 25, the uptrend seen in November canola continues to strengthen, with the contract ending $7.40/mt higher at $487.50/mt on Friday, its largest one-day move seen in almost a month while reaching its highest level seen since July 5.

Resistance broken in today's move includes the contract's 200-day moving average at $482.20/mt along with the 50% retracement of the move from the June high of $532/mt to the July low of $442.20/mt found at $487.10/mt.

The canola harvest remains a troubling situation on the Prairies. On Thursday, the Saskatchewan government reported that 77% of the canola crop is off, unchanged from the previous week, with the possibility that greater than 2 million metric tons are yet to be harvested. On Friday, the Alberta government reported that the harvest is 67.2% complete, up 5.4% from the previous week, with close to 2 million metric tons to come off based on Statistics Canada acreage estimates combined with Alberta Agriculture yield estimates.

One would think that this alone would drive the canola market higher, although there was a great deal of spillover seen from global oilseeds today, despite the bearishness of the USDA report seen Wednesday. Over the course of the week, November soybeans gained 5 3/4 cents or .6%, December soybean oil gained 1.07 cents/lb or 3.21%, December Malaysian palm oil gained 99 ringgits or 3.9% and November rapeseed on the Euronext exchange closed EUR11 or 2.9% higher. It was a solid week for global oilseeds.

The November canola contract gained $17.70/mt or 3.8% during the course of this week's trade. If you look back to the fall of 2009, the last time that the prairie harvest dragged on well into November, the continuous active chart (not shown) shows the market rebounding $58.60/mt or 16% from a low of $365.20/mt on Oct. 7 to a fall high of $423.80/mt by Dec. 16. Also supportive for canola at this time of year is its seasonal tendencies, with DTN's five-Year Seasonal Index pointing to a continued move higher through the end of October.

With Canada's exports to China a source of concern earlier in the crop year, this week's USDA Foreign Agricultural Service attache report China -- Oilseeds and Products Update shows the possibility of higher volumes of rapeseed/canola moved to China than seen in the previous crop year. The FAS suggests that China may import 4.5 mmt this crop year as compared to 4.05 mmt in 2015/16 and the official USDA estimate of 3.8 mmt. This would remain lower than the 2013/14-2014/15 average of 4.8 mmt. China's state rapeseed oil reserves remain pegged at 4.1 mmt after 2.28 mmt was sold earlier in the year and will contribute to lower rapeseed/canola oil imports this crop year.

This week's COPA crush data shows Canada's domestic crush at a cumulative volume which is 13% higher than the previous crop year and close to the pace needed to reach the current 8.9 mmt crush target set by AAFC. Cumulative exports, however, are at a cumulative volume which is 17.7% below last year and are close to 380,000 mt below the cumulative pace needed to reach AAFC's 9.5 mmt export target (licensed exports only).

The lower study on the attached chart shows canola's price move relative to soybeans. Today's move saw November canola close at a $23/mt premium to November soybeans (Canadian dollars/mt). Most of this strengthening took place this week, while this spread has been in an uptrend since July 4 when canola traded at a $56.32/mt discount to soybeans.


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