Canada Markets

January Canola Continues to Trend Higher

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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January canola reached a fresh contract high on Nov. 1 and an all-time high on the continuous active chart. Trade volume was up from the previous session but still relatively light. The first study shows the Jan/March (brown line) and the Jan/July (red line) futures spreads strengthening this session, while the lower study points to the noncommercial net-long position increasing for 13 consecutive weeks (blue histogram bars). (DTN ProphetX chart)

Canola futures continue to reflect the tight fundamental situation facing the market, with some spill-over support a possibility from the higher close in both soybean oil, rapeseed and crude oil trade. The January contract closed $10.40/metric ton (mt) higher, at $970.20/mt, leading all contracts higher, although today's close was below the $978.30/mt high reached in the Nov. 1 session. The January contract has reached a fresh contract high in six of the past nine sessions.

The nearby Jan/March futures spread strengthened $2.60/mt this session to $24.10/mt (January over the March contract), which is the strongest spread in two months. A longer time frame is shown by the red long on the first study, which shows the Jan/July futures spread strengthening $5.50/mt this session to $97.60/mt, while taking out the August high on the spread chart and reaching the strongest spread seen over the life of the two contracts. This reflects a growing bullish view of market fundamentals, often due to the action on the commercial side of the trade.

The blue bars on the histogram of the lower study of the chart signals the growing noncommercial net long position. The size of this position has growing for 13 consecutive weeks as of Oct. 26. This activity has slowed, with the size of this position growing by an average of 292 contracts during the past three weeks. At the same time, depending what happens on Nov. 2, it is conceivable that this bullish position will have grown for a 14th week.

While futures have been doing the work during recent weeks, the ICE Exchange reports the Vancouver cash basis strengthening $15/mt to $80/mt over the January contract today. It is not often that all-time high futures are accompanied by strengthening basis and this move bears watching as we enter into the colder winter, while demand has been reported at favourable levels when the tighter supplies are taken into account. In week 12, total disappearance (exports plus domestic use) totaled 476,900 mt, a volume that was the highest seen in any single week this crop year.

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