Canola futures showed resilience overnight although morning trade weighed heavily on futures, following in the direction of competing oilseeds and vegetable oils, along with grains and outside markets. Price action has distanced itself further from crop fundamentals and given that a contract low was reached in the May contract, we turn to the continuous active chart for technical signals.
Thursday's move in the nearby May contract saw price return to dip below the Feb. 28 contract low of $451.20/metric ton, reaching a low of $450.60/mt, closing $9.10/mt lower at $451/mt.
Thursday's move also dipped below trend line support drawn from the May 6, 2019 low of $427.50, with support on this line also seen at $451.20/mt. This line is shown as the upward sloping blue line on the attached chart, the third time that price has returned to test this support. At the same time, Thursday's close was the first time that the daily close ended below this level of support, with previous tests ending with a bounce that resulted in a daily close well above the session low.
Given the potential for further weakness, a range of technical support lies between $445/mt and $450/mt. This consists of the 61.8% retracement of the move from the May 2019 low to January 2020 high at $449.50/mt, the 67% retracement of the same move at $446.50/mt, and a September 2019 weekly low of $445/mt. A breach of this range could result in a further slide to $437/mt, shown by the dashed red line, while represents weekly lows from July and September 2019 at the $437/$437.20/mt level.
The lower study shows noncommercial traders holding close to the largest net-short position in canola futures seen in 12 weeks as of March 2, a position that will undoubtedly be reported to grow in the following weeks and may soon test the record reported in Sept. 2019.
While not shown, the May/July futures spread is reported unchanged this week as of the end of Thursday's session, as commercial traders show caution. This same spread is seen narrowing and is viewed as less bearish on the soybean chart while appears as bearish on the soybean oil chart.
While not shown, a look back in time at the H1N1 pandemic in 2009-10 shows the continuous monthly canola chart gaining $64.40/mt early in the April-through-June period of 2009 to a high of $484.80/mt, with April being the first month of the disease. Price slumped to a low of $365.20/mt by October of the same year, while it was September/October of 2010 before prices returned to the highs reached early in the period of pandemic.
Cliff Jamieson can be reached at firstname.lastname@example.org
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