November 2016 canola trade looked positive on Wednesday, closing above various levels of resistance while reaching the contract's highest level seen since June 21. A combination of commercial and noncommercial interest has driven prices this week, with the monthly chart showing canola cruising to its third higher monthly close in October, up $40.80/metric ton in the current month alone.
Like the nearby November 2016 canola contract, the November 2017 is also flirting with the $500/mt level. In the past two sessions, Nov 2017 canola traded above psychological resistance at $500/mt although had failed to hold this level. Wednesday's trade resulted in a close of $500.90/mt, after reaching its highest level since July 15. Further resistance lies at $501.70/mt, the 61.8% retracement of the move from the $520/mt high reached on June 3 and June 8 to the $472.10/mt low reached on August 2. The 67% retracement of the same move lies at $504.20/mt, while the ultimate challenge may be the double-top (also the contract high found at $520/mt.
The Nov 17/Jan 18 spread is reported at a weak carry of $1.60/mt, which itself can be viewed as a bullish signal, given the small cost of carry relative to full carry. Canola's forward curve (a line joining the daily close for a number of consecutive futures contracts) for the 2017/18 crop year is upward sloping, which is viewed as a carry market, although the curve is relatively flat and can also be viewed as bullish.
While a long way off, there are a few factors adding to the uncertainty for canola/rapeseed in the 2017/18 crop year. First is the delayed canola harvest on the Prairies and the potential losses faced which may have an impact on the crop year's ending stocks. As well, concerns are mounting over the potential for a disappointing winter crop in the European Union.
While the USDA has estimated 2016/17 EU rapeseed production at 20 million metric tons, the lowest since 2012/13, concerns over the current dry conditions in France is viewed to take a toll on that country's production potential for the 2016/17 crop year, despite estimates which point to an increase in acres planted. While it's early days, European analysts are indicating that production will be challenged to recover from the four-year lows realized this crop year. With current global rapeseed/canola stocks/use estimated at a tight 7.8% by the USDA for 2016/17 in their October data, further tightening within this complex should be viewed as bullish.
On the Euronext Exchange, November 2017 rapeseed futures gapped higher to start the week in Monday's trade while has reached an 18-month high of EUR381 on Wednesday. The Nov 17/Feb 18 spread is also shown at a weak carry.
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Cliff Jamieson can be reached at firstname.lastname@example.org
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