Canada Markets

Nearby Canola Leads Canola Complex Lower

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Support from the range traded since March 1 on the May ICE Canada canola contract was broken in Thursday's trade, while a fresh contract low of $442.90/metric ton was reached in Monday's trade. Bearish activity is seen in both commercial and noncommercial trade. (DTN ProphetX chart)

Since March 1, the nearby May canola contract has ranged within a $20.50/metric ton range, from the $448.40/mt low reached on March 1 to the $468.90/mt high reached on March 21. This range was broken in Thursday's trade with a fresh contract low of $447.90/mt reached, while Monday's trade resulted in further pressure with the nearby May ending $6/mt lower after reaching a $442.90/mt low. The July contract settled $5.80 lower at $451.40/mt.

Today's May loss was the fifth consecutive loss faced on the contract, while the $6 loss is the largest one-day loss realized in one month. The first study shows the stochastic momentum indicators just entering oversold territory, which could indicate that further downside is possible.

The next two studies focuses on the actions of commercial and noncommercial traders. The brown line on the second study points to the nearby May/July futures spread weakening this session to minus $8.30/mt (July trading over the May contract), a level of carry that represents a bearish 73% of commercial carry, although has failed to breach the March 1 spread of minus $8.80/mt.

The lower study shows the CFTC noncommercial futures position held. As of data released for April 16, this group had increased their bearish net-short position in canola futures for the first time in three weeks, while the current net-short of 56,849 contracts is close to the record net-short position held on March 26 of 58,969 contracts.

Potential technical support levels may be found on the continuous active chart (not shown). This chart points to potential support ranging from $435.50/mt, a February 2016 weekly low, to $442.20/mt, a July 2016 weekly low. Within this range lies the 67% retracement line of a move from a September 2014 low of $388/mt to a May 2016 high of $544.60/mt, calculated at $439.70/mt. This range of trade has provided chart support for over four years.

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

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(ES)

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