Canada Markets

Canola Futures Trade Sideways

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The May canola price remains range-bound, with Monday's close near the middle of the range traded over the past month. The first study shows stochastic momentum indicators failing to reach overbought and oversold levels in recent trade. The second study shows the May/July spread at minus $7.80/metric ton, viewed as slightly bearish. The lower study shows investors increasing their bearish net-short for seven straight weeks. (DTN chart by ProphetX)

Since March 1 when the ban on Richardson International canola imports was announced by China, old-crop trade in the May future canola contract has ranged from a low of $448.40/metric ton to a high of $468.90/mt. It ended Monday's session at $456.60/mt, close to the midpoint of this range. This marks the third higher close, while pointing to an ongoing struggle with the contract's 20-day moving average.

The second study on the attached chart shows traders noncommittal in terms of market direction, with stochastic momentum indicators ranging from close to overbought territory (above 80%) on March 21, while close to oversold territory (below 20%) on May 27, while stabilizing in sideways trade.

The May contract has struggled with its 20-day moving average during the past seven days, calculated at $458.50/mt on Monday. The brown line on the second study points to the May/July futures spread at minus $7.80/mt, a spread that represents roughly 68% of full commercial carry, which can be viewed as slightly bearish.

A breach of the March 7 low of $448.40/mt, as shown by the dotted red line on the chart, could lead to a test of weekly lows on the continuous active chart (not shown) ranging from $435.50/mt to $442.20/mt, could be called on to prevent a further slide. Resistance is shown at the 20-day moving average of $458.50/mt and the March 1 high of $470/mt.

The blue bars of the histogram on the lower study points to the noncommercial futures position reported at a net-short of 58,969 contracts, as of March 26, a bearish position that has been growing for seven consecutive weeks. At the same time, the latest week's data, as of March 26, saw this position grow by only 338 contracts, the smallest week-over-week change seen over this seven-week period. During the last six weeks, this bearish position has grown by an average of 5,631 contracts per week, while ranging as high as 8,740 contracts in the week of March 12.

Perhaps the fund trade has good reasons for caution. Week 34 exports were reported at the highest level reported in six weeks. As well, ICE Canada has reported Vancouver cash trade to strengthen for the second time in a week to $30 over the May contract, despite the lack of new business to China.

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DTN 360 Poll

This week's poll asks if you intend to reduce canola acres planted in 2019 due to the current trade issue with China. You can weigh in with your thoughts on this poll on the lower-right side of your DTN Canada Home Page.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow him on Twitter @Cliff Jamieson

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