Canada Markets

January Canola Settles Lower on Investor Selling

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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January canola stalled at last week's high of $522.50/metric ton on Thursday, while posting a bearish outside-day trading bar. The middle study points to a bearish turn in the short-term momentum indicators. The lower study points to narrowing futures spreads this session, a sign of commercial buying interest, while speculative profit taking was behind the move lower. (DTN graphic by Scott R Kemper)

Thursday's January canola high of $522.50/metric ton reached last week's high, but speculative trade took charge from that point forward, with today's close near the lower-end of today's $7.30/mt trading range. The January contract finished at $515.50/mt, down $5.30/mt, with weakness in seen in global oilseeds along with Canadian dollar strength weighing on prices. Bearish short-term signals were triggered this session, the first being an outside reversal bar on the daily chart, with today's trading range trading outside the range traded over the past three days. Secondly, the middle study points to a bearish crossover and turn lower in the stochastic momentum indicators, while in overbought area of the chart above 80%.

Commercial and noncommercial traders swapped roles on Thursday, with supportive commercial buying seen for the first time in five days, given movements in the January/March futures spread while investor selling drove prices lower. While the nearby spread (brown line, lower study) remains at a bearish minus $6.90/mt (March trading over the January contract), spreads later in the crop year such as the March/May (blue line) and the May/July (black line) suggest a neutral to bullish view of market fundamentals later in the crop year.

The USDA's Oilseeds: World Markets and Trade report indicated slightly bullish data for global canola/rapeseed in today's release. The report highlights include an upward revision for rapeseed production in the European Union and Russia, with this month's global production revised 180,000 mt higher, to 72.055 mmt. At the same time, global ending stocks were revised a modest 37,000 metric tons lower, to 4.940 mmt. This would represent the smallest global carryout seen in five years, but when calculated as a percentage of annual use, represents a stocks/use of 6.8%, the tightest ratio seen since 2003/04.

In recent days, the International Grains Council reported data that shows the 2017/18 stocks held by major exporters, defined as Australia, Canada and Ukraine, falling for the fourth consecutive year.

While cash basis on the front-end remains weak, with a prairie average of close to $30/mt under, based on accessible internet bids, this certainly is not the case a few months out. This suggests that buyers are starting to position for a much different market in the new year. Recent strengthening of cash bids at certain crushers point to the presence of single-digit basis levels, even an option price bid for delivery in March. Given the large volumes moved this fall, it is likely that cash selling/deliveries will slow substantially as producers also shift their focus a few months out.

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