The canola market seems caught between its bearish fundamentals tied to its current trade impasse with China along with the current dry conditions on the Prairies.
Over the past five sessions, the November contract has rallied between $452.80/metric ton and $461.90/mt, a $9.10/mt spread, as conditions remain dry across the Prairies while forecasts for 2019-20 have grown increasingly bearish. On Tuesday, Manitoba's crop report pointed to areas of the province where moisture is a limiting factor for germination, with the latest seeding efforts in the driest areas of the province placing seed into dry soils.
At the same time, Agriculture and Agri-Food Canada released its latest supply and demand tables, reducing export prospects for 2018-19 to 9.3 million metric tons, while upping ending stocks to a record 3.9 mmt. In 2019-20, exports are reported to fall even further, with carry out forecast at an unthinkable 5.3 mmt.
As a result, traders have taken a cautious approach, with new-crop November canola holding within a $9.10/mt range over the past five sessions. Unlike new-crop soybeans, which are struggling with resistance of their 20-day moving average, November canola has found support from its 20-day average in recent trade.
Resistance on the daily chart remains at $466.40/mt, the 33% retracement of the move from the contract's high to its recent contract low, while the contract's 50-day moving average is seen slightly higher at $467.20/mt.
What does seem interesting in this analysis is the November/January futures spread, showing by the green line on the second study. This spread ended at minus $5.50/mt (January trading over the November), which reached as narrow as minus $5.40/mt during the session. This is a less-bearish approach to trade on the part of commercial traders, with this spread having traded as wide as minus $7.30/mt on April 29. Today's close is the narrowest traded in more than three months, or before China's trade actions against Canadian canola were made public on March 1, while signaling a neutral view of market fundamentals.
The histogram on the lower study shows that investors or noncommercial traders slightly pared their bearish net-short position, as of May 14 CFTC data, to 74,606 contracts. This is still close to the largest bearish position held in weekly data going back to August 2018. The current position held remains a bullish feature for this market, should this group of traders continue to cover this short for any reason.
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