The July19/November19 spread closed at a weekly high of $22/metric ton for the week-ending May 22 (July 2019 above the November 2019), while the trend for the old-crop July/new-crop November contract has since shown weakness, ending at minus $13.60/mt on Tuesday (November trading over the July contract). This signals a growing bearish reaction on the part of commercial traders, while Tuesday's spread reached its weakest level seen since April 2014.
Despite bearish news hitting the press this week surrounding China's move to slow canola imports, this spread has only weakened $0.70/mt in the first four days of this week, while weakening $8.30/mt in the week prior and weakening an average of roughly $3.50/mt over each of the past five weeks. The bearish effect to the market may be easing, with nervous short-covering resulting in a higher close on Thursday. With the media breaking the news this week of China's move to limit Canadian canola imports, the nearby May contract has lost $5.10/mt in this week's trade, while losing an average of more than $10/mt in each of the past three weeks, indicating this news has largely been priced into the market in previous weeks.
Just the same, Monday's close for the new-crop/old-crop spread is seen at minus $13.60/mt and is the weakest spread seen April 2014, as indicated by the horizontal black dotted line. During the 2013/14 crop year, carryout reached a record 3.008 million metric tons, a massive 412% increase from the 588,000 mt carried out of the 2012/13 crop year.
The February AAFC supply and demand estimates included a modest 200,000 mt reduction in canola exports to 10.8 mmt, while boosting ending stocks to 2.5 mmt, unchanged from the previous crop year. The historic pace of movement would indicate that this may be a conservative estimate. Over the past five years, an average of 56.1% of total crop year exports were realized as of week 30, an average pace that would project to crop year exports of 10 mmt, or 800,000 below the current forecast, while the average pace of movement would project to ending stocks of roughly 3.3 mmt.
Cliff Jamieson can be reached at email@example.com
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