Dry conditions on the Prairies, with some producers reporting seed sitting in dry soils, concerns of potential frost damage in the eastern Prairies, along with concerns over the wet conditions in the U.S. have resulted in upward momentum in the November canola contract. The contract closed $8.10/metric ton higher on Wednesday, which appears to be the largest one-day move realized over the life of the contract. This is despite current government forecasts that indicate that ending stocks could more than double over a two-year period as of July 31, 2020.
The move resulted in a close above the contract's 50-day moving average, the first time since Feb. 13, along with a move above the 38.2% retracement of the move from the contract's high to the contract's low, calculated at $470.80/mt. This clears a path for a further move to a test of the contract's 100-day moving average at $478.60/mt and the 50% retracement of the same down-trend at $479.70/mt.
The two lower studies on the chart point to likely buying on both the commercial and noncommercial sides. The green line on the second-last study shows the new-crop November/January futures spread narrowing to minus $4.60/mt, signaling a neutral view of market fundamentals in the eyes of commercial traders. The lower study shows noncommercial traders holding close to a record net-short position in canola futures, as of May 21.
Despite the continuing trade issues faced into China and growing bearish balance sheets reported by government sources, new-crop basis reported by pdqinfo.ca remains relatively stable. On March 1, the day China's ban became public, the average of the four Saskatchewan quadrants reported by pdqinfo.ca was $32.49/mt under the November contract for November delivery. On May 1, this was reported at $35.91/mt under, while on May 28 this average is calculated at $34.70/mt under the November contract. Over the past three years, DTN's average prairie basis for November delivery on this day is calculated at $30/mt under.
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Cliff Jamieson can be reached at firstname.lastname@example.org
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