Canada Markets

New-Crop Canola Faces Chart Resistance

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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November canola recouped Friday's loss in Monday's trade, nearing a range of resistance that ranges up to $500.20/mt. The market is overbought (second study), although may continue in this fashion. The lower study shows the Nov/Jan spread narrowing for the second day, a sign of supportive commercial activity. (DTN graphic by Nick Scalise)

Perhaps it's not often that a crop facing a potential record seeded acreage is also testing new-crop resistance on the chart, but this is the case with canola as traders set aside Friday's Statistics Canada forecast for a record planted acreage in 2017 to focus on the weather challenges faced on the Prairies. This has implications for both the 2016/17 and 2017/18 marketing years.

Friday's report pointed to a record 22.4 million acres to be planted in 2017, the upper-end of pre-report estimates. The November lost as much as $6.70/metric ton following the report, only to close a modest $1.60/mt lower over the session. The lower-study shows the November/January spread strengthening or narrowing $.10/mt, to minus $3.80/mt, anything but a bearish response from commercial traders, or those closest to the commodity.

Monday's trade saw a further push higher, with the November ending $2.70/mt higher, to end at $494.80/mt, while the Nov/Jan spread strengthened a further $.20/mt, to minus $3.60/mt. A range of resistance lies between today's close and a continued move higher, namely:

1) Monday's trade failed to sustain a move above the contract's 200-day moving average, closing just $.10/mt below this level, calculated at $494.90/mt. A finish above this resistance would be the first since March 13.

2) The contract's 100-day moving average is calculated at $497.60/mt.

3) The contract's 61.8% retracement of the move from the March high to the April low, calculated at $498/mt.

4) A double-top at $499.50/mt was created in March 22/23 trade.

5) Psychological resistance lies at $500/mt

6) Retracement resistance lies at $500.20/mt, the 67% retracement of the move from the March high to the April low.

"We're just flat running out of canola," a Winnipeg broker told Dow Jones news service on Monday. Snow in areas of the Prairies is reported to further delay spring harvest, although there exists significant uncertainty surrounding the quality of this seed -- who will purchase it for what purpose, and at what price.

To date, new-crop basis levels fail to indicate any sense of urgency. The average prairie basis for September delivery is calculated at $36.35/mt under the November future, roughly $10/mt weaker than reported this time last year for the same period.

The May 5 stocks report, as of March 31, could be a key report for both old-crop and new-crop trade.


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