Canola futures are entering their normal period of seasonal bearishness, although continued uncertainty over the crop's potential, hopes for developments in trade with China and prospects for a significant carryout in 2018-19 continues to lead to sideways trade.
One recent trade estimate is indicating a good-to-excellent rating of 58% across the Prairies, with recent government estimates pegging Saskatchewan's crop at 42% good to excellent while the Alberta crop was rated 70.4% in that same category.
In July 18-19 trade, the November canola chart first reached a new-low on July 18 in the sideways pattern traded since early July, only to come within $0.10/metric ton of testing the high reached over this period just one day later July 19.
July 22 trade saw the November contract fail at the contract's 20-day moving average for a second session at $449.70/mt, signaling continued technical weakness, while psychological resistance at $450/mt remains a barrier as well as the 33% retracement of the move from the June high to July low, calculated at $450.40/mt.
The green line on the second study points to the November/January futures spread, which has narrowed for three consecutive days to minus $6.90/mt, a less-bearish approach to trade on the part of commercial traders that represents 57.5% of full commercial carry, viewed as neutral overall.
The green bars on the histogram of the lower study points to the bullish approach taken by commercial traders, now holding the largest net-long position seen in records going back to August 2018, at 77,667 contracts as of July 16.
The blue bars on the lower study points to a record net-short position held by noncommercial traders of 76,954 contracts, as of July 16. The previous record in this position was realized in early May, at a time when futures were oversold on the daily chart and futures bottomed to signal the start of a rally that saw prices trend higher through the middle of June.
The difference between these two positions is seen on the stochastic momentum indicator study, or first study. When the previous record net-short position was reached the week of May 7, momentum indicators were oversold, formed a bullish cross-over and attracted short-covering for several weeks. The latest week's data comes at a time when momentum indicators are well on their way to overbought territory, which may act to slow noncommercial short covering and limit upside potential.
Cliff Jamieson can be reached at email@example.com
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