Canada Markets

Canola Futures Near the Top-Third Range

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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As of last Friday's weekly close on the nearby canola contract at $514.50/metric ton (red bar), the market has only finished higher 35% of the time over the past five years. The blue bar represents the point which marks the price level of the top 33% of the weekly closes, at $519/mt. (DTN graphic by Nick Scalise)

If your marketing strategy is to sell in the top one-third of the range of available canola market prices, your time may be coming. Canola's Five-Year Price Probability, one of six factors used in DTN's proprietary market analysis methodology, shows last week's close on the continuous weekly chart at $514.50/metric ton (January contract, red bar on the attached chart), which is in the upper 35% of the range of prices traded for that particular week over the past five years.

As seen on the attached chart, the blue bar represents the upper-33% of the price range over this same five-year period which was calculated at $519/mt for the past week, only $4.50/mt higher than the actual close. The theory on this particular chart is that if the red bar moves to the right of the blue bar, or into the top 33% of the range of historical prices, a marketing opportunity may be realized.

Canola diverged from soybeans on Tuesday, posting modest losses along with soybean oil. Interest in soymeal was the driving force behind the fourth consecutive higher close for January soybeans, which saw the market poke its nose above resistance of $10.31/bu., while closing just below at $10.30/bu. The nearby canola price has lost ground against soybeans since Nov. 16, with the canola/soybean spread chart showing a sharp move below an upward-sloping trendline which has supported the spread since July 4 (Canadian dollars/mt). Today's spread is close to $12/mt (canola higher than soybeans), its weakest seen since Oct. 12.

Also on the radar is the amount of harvest which will be delayed until spring, which will tighten available stocks, with perhaps as much as 8% to 10% of the crop unharvested. Additional challenges will be faced dealing with the massive quantities of tough and damp grain taken off which could lead to further losses. One producer chat site discussion suggested that drying capabilities at local elevators were booked until February which will lead to many producers scrambling to keep binned grain from heating. As of week 15 or November 13, producers had delivered 482,000 mt more canola into commercial channels than the previous year, with this hedge pressure keeping pressure on current prices along with Canadian dollar strength seen over the past seven sessions.

Also of interest is that the market is now in a period of normal seasonal weakness that lasts into mid-December.


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