Canada Markets

Canola Ventures Below $500 Per Metric Ton

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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November canola ended $8.50 per metric ton lower on Wednesday, closing below $500/mt for the first time in over five months. The first study shows the stochastic momentum indicators nearing oversold territory on the daily chart, which may slow investor selling. The middle study shows the Nov/Jan spread weakening to minus $6/mt, a sign of bearish commercial selling this week. (DTN ProphetX chart)

It was a bearish day of trade for the canola market, as grains, equities and global commodities took a hit following announcements from the U.S. that the list of import tariffs assessed against imports from China is about to get longer, or an additional $200 billion in USD terms.

This comes as the president of China's state grain trader, COFCO, revealed to Reuters a plan to reduce that country's dependence on United States soybeans while replacing it with increased purchases of rapeseed, sunflower seeds, soybean meal, rapeseed meal, sunflower meal and fishmeal. An option also exists to increase imports of meat.

Despite this, and a weaker Canadian dollar trade, November canola extended losses for a third straight session on Wednesday, following a false bullish signal in Friday's trade that resulted in a higher close along with a bullish outside-day trading bar formed on the daily chart. The November ended $8.50 per metric ton (mt) lower on Wednesday at $494/mt, ending below key psychological support at $500/mt. This move also takes us below retracement support at $499.40/mt, which reflects the 50% retracement of the move from the August low to the contract's June 1 high of $528/mt.

Canola continues to show resilience relative to soybeans, with Wednesday's November soybean close down 20% from its May 29 high, while November canola is down 6.4% from its June 1 high. This could still leave canola viewed as overpriced and vulnerable relative to soybeans without fresh signs of demand. While not shown on Wednesday's chart, the continuous November chart shows a breach of an uptrend line in Wednesday's trade that has been in place since the November 2014 contract hit a Sept. 22 low of $388/mt.

The Nov/Jan spread has weakened $1/mt this week to minus $6/mt, a sign of growing commercial bearishness despite claims from China's traders that they could be seeking more supplies. The prairie crop condition could be viewed as good overall, with non-threatening temperatures seen in the five-day forecast as the crop flowers.

Potential support lies at $492.60/mt, the 61.8% retracement of the move from the August 2017 low to the June 2018 high. A breach of this level could result in a further move to the 67% retracement level at $489.60/mt, which would reflect a 2018 low reached in trade.

The potential exists for a supportive report from USDA on Thursday, following the International Grains Council's recent month-over-month reduction in global rapeseed production and stocks expected to fall by more than 20% from 2017/18. USDA is also expected to reveal its first look at shifting global trade patterns as the trade war escalates.

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