While canola's seasonal tendency points to the potential for a sharp move higher starting in early January and lasting into the summer months, the potential for a sideways move exists in the November and December period. Failed attempts to move above resistance in Friday and Monday's trading sessions at $512.40/metric ton, the 50% retracement of the move from the January contract's July high to September low, should perhaps not be a surprise.
This is the time of year when big moves are not expected, compounded by a U.S. soybean harvest that is close to average pace, forecasts calling for increased moisture to hit Central Brazil and trade talk of a potential upward revision to Canada's canola production estimate.
Over the past five years, the continuous canola chart shows that prices only increased in two of the five years in the Nov. 1 to Dec. 31 period, while losing in the other three. During the five years in question, the market lost an average of $11/metric ton, with the largest move higher of $13/mt while the biggest move lower was lower was $41.80/mt.
Despite facing strong demand so far this crop year, producer deliveries have left buyers in a comfortable position. As of week 11, producers have delivered 4.4748 million metric tons, a record pace and 22.8% higher than the five-year average. While both exports and crush are at aggressive levels to-date this crop year, commercial stocks have increased in each of the past two weeks to 1.4546 mmt, or 14% higher than the five-year average for this week.
While the average prairie basis remained steady from late last week, based on accessible internet bids, a weakening was seen in November, December and January delivery months which may be a sign of what's to come for the near future.
Today's nearby futures spread, the November/January spread, closed at minus $7.70/mt, $1/mt stronger than Monday's close, but still reflects approximately 76% of the full carry as reported by the ICE Exchange. This indicates a bearish sentiment held by commercial traders. This could be a signal of a 20-21 mmt crop to be reported by Statistics Canada in early December.
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