Canada Markets

November Canola Faces Long-Term Support

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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For a longer-term perspective, here is the November canola monthly chart. Today's low of $472.40/mt compares to a range of monthly lows reached in July/August 2016 and March/April 2017, ranging from $471.80/mt to $473/mt. The middle study indicates the stochastic momentum indicators trending lower, while a further move may be seen prior to reaching oversold territory. The lower study points to the Nov/Jan spread steady at minus $5.80/mt, as commercial traders take a neutral stance. (DTN graphic by Nick Scalise)

Today's low in the November canola contract of $472.40/metric ton, now the contract of choice for many buyers in calculating prairie prices, takes us back to a level seen four times in the past 11 months.

In July and August of 2016, the contract reached lows of $472.20 and $472.10/mt respectively. These lows were tested once again when the March 2017 low reached $473/mt and the April low reached $471.80/mt.

The red horizontal line on the attached chart represents this resistance, but will it stop there?

Reasons for concern include:

1) Daily, weekly and monthly stochastic momentum indicators are trending lower, but have yet to reach the oversold level of the chart (below 20%) which suggests that more noncommercial selling may continue.

2) DTN's Five-Year Seasonal Index chart indicates a normal uptrend into the month of June that gives way to a move to a downtrend in prices which results in a seasonal low in early September. A quick look at the last two years shows the November canola future falling by $89.80/mt from the June 15 high, while the November 2015 contract fell by $85.40/mt from the July 2 high.

3) Saskatchewan's weekly crop report shows 56% of the oilseed crop at or ahead of normal growth stages as of June 19. This is unchanged from last week and is only slightly below the five-year average for this week, calculated at 58.3%.

4) As seen on the attached chart, commercials have maintained a neutral stance, with the Nov/Jan spread holding steady at minus $5.50 to minus $6/mt (January trading over the November) since mid-May. As well, new-crop basis levels for November delivery have remained steady for the past two months.


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