Canada Markets

Bearish Move Seen For November Canola

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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November canola closed $9 per metric ton (mt) lower on Tuesday, its largest one-day loss in over three months. The session's move resulted in a breach of the 50-day moving average and the 50% retracement of the move from the May low to June high. The first study shows the Nov/Jan spread showing modest weakness to minus $7.30/mt, while the second study points to a slow paring of the noncommercial net-short held by noncommercial traders. (DTN ProphetX chart)

November canola is breaking technical support as recent rains eased concerns, largely seen on the noncommercial side of the market. The ICE Canada November contract finished $9 per metric ton (mt) lower at $456.10/mt, facing its largest one-day loss seen in just over three months.

Tuesday's move saw the November price move below the contract's 50-day moving average at $461.70/metric ton and psychological support at $460/mt. As well, the move saw price push below the 38.2% retracement of the short-term move from the contract's May low to June high at $464/mt, as well as the 50% retracement of the same move at $459.80/mt.

Tuesday's move reached the lowest level traded in over four weeks, after printing a bearish outside-day trading bar on the daily chart, trading both higher, then lower, than the previous day's trading range. The four-week low also represents a bearish technical signal of a change in trend.

The first study points to the new-crop Nov/Jan spread that ended $0.30/mt weaker on Tuesday at minus $7.30/mt (January trading higher than the November), representing approximately 60.6% of full commercial carry. While this percentage is the most bearish calculated in close to two months, it remains viewed as a neutral view of fundamentals held by commercial traders, although is growing increasingly bearish. The weekly chart shows this spread unchanged over the first two days of this week, indicating the noncommercial, or speculative, side of the market is behind this week's weakness.

The blue bars of the histogram show noncommercial traders slowly paring their bearish net-short position over the past six weeks, with the latest data as of June 18, but in no way are showing signs of panic short-covering despite the historic dry conditions earlier reported for areas of south and central Saskatchewan in previous weeks. Another sign of this bearishness is seen in option open interest (not shown), with a snapshot as of June 24 showing November calls at 9,305 contracts as compared to November puts at 12,350 contracts.

The lower study points to the stochastic momentum indicators on the daily chart continuing to trend lower, while pointing to the potential for a continued move prior to reaching oversold territory. One thing to note is that momentum indicators crossed and rolled over in neutral territory and near the overbought region of the chart but does not represent the most bearish of turns, which would require a crossover in overbought territory above 80%.

Watch for a possible test of retracement support at $455.60/mt, the 61.8% retracement of the May/June uptrend, while possible trendline support is seen at $453.80/mt, drawn from the contract's May low.

Statistics Canada is set to update their seeded acre estimates on June 26 at 7:30 a.m. CDT. Recent pre-report estimates point to the seeded acre estimate being pared from the March estimates, although this failed to concern both the commercial and noncommercial side of the market on Tuesday.

A quick calculation utilizing a 500,000-acre cut from the March Statistics Canada estimate while leaving all AAFC's other 2019-20 estimates unchanged would suggest that ending stocks would end close to unchanged from the current crop year over the next year at historic highs. At the same time, there is a lot of growing season left and the conversation will quickly turn to the crop's response to late moisture and the slow developing crop as the threat of fall frosts loom.

As well, demand remains a wildcard in the crop year ahead, with current hopes that U.S. President Donald Trump will take up Canada's case in his meeting with China's leader at the upcoming G-20 meeting in Japan, as promised.

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

Follow him on Twitter @CliffJamieson

(AG)

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