Noncommercial selling weighed on new-crop November canola on Monday, given the unchanged Nov/Jan spread that points to a neutral response by commercial traders. The current spread represents a neutral 52.4% of full carry between the November and January contracts, with values below 33% viewed as bullish and above 67% viewed as bearish given DTN viewpoints.
Since Jan. 13, November canola has remained within a $20/mt range between $491/mt and $509.40/mt, while today's activity resulted in a bounce near the lower-end of the range to close above support and near the mid-point of the $5.40/mt range traded this session. Support can be found at $494.80/mt, the 61.8% retracement of the move from the contract's January low to the contract's February high, as well as $493.50/mt, the 67% retracement of the same uptrend. A breach of these levels along with $491, the Jan. 16 weekly low, could result in a slide back to the January low of $485.70/mt.
Latest revisions to supply and demand tables by Agriculture and Agri-Food Canada points to a 900,000-metric-ton drop in canola ending stocks to 1.1 million metric tons for 2016/17 given hikes in both forecast exports and to a lesser extent crush, which then becomes opening stocks for 2017/18. Both exports and crush remain at a pace that exceeds the new demand estimates, although how long this pace can continue is uncertain. The ratio of ending stocks to total demand for both 2016/17 (5.7%) and 2017/18 (5.9%) is expected to be found in single digits, not seen since 2011/12 (4.4%) and 2012/13 (4.2%).
A look at the average future price calculated on the continuous active chart for those two crop years are the highest seen in the past 10 crop years. In 2011/12, the average price calculated using ProphetX is calculated at $569.96/mt, while for 2012/13 was calculated at $610.99/mt. To-date, the 2016/17 average is calculated at $494.78/mt, while the last three crop years saw the average future in a tight range of $465.92/mt in 2013/14, $454.24/mt in 2014/15 and $478.56/mt in 2015/16.
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