Canola futures could not avoid the massive sell-off seen across both the grains and outside markets in Tuesday's session, including crude oil. The January contract closed $40.30/metric ton (mt) lower at $987.10/mt and the March closed $38.10/mt lower at $960/mt, with today's close ending in the lower one-half of the range traded this session.
Canola continues to show resilience when one considers that today's move has resulted in a close below the contract's 20-day moving average, while both soybeans and soybean oil futures closed this session below all major moving averages.
Canola's premium to soybeans remains a concern. The continuous active canola/soybean futures spread chart shows a close at $414.40/mt on Tuesday (canola above soybeans in CAD/mt), down from a recent high of $451.40/mt. This compares to the three-year average of $44.78/mt. Canola remains over-priced relative to soybeans and weakness in the soy complex is hard to avoid in the canola trade.
The blue bars on the lower study on the attached chart shows the noncommercial net-long position in canola futures increasing for 17 consecutive weeks, to 58,704 contracts, which is the largest net-long position held since a record high of 61,247 contracts was reached for the week of Dec. 15, 2020. The growth in this position leaves the market vulnerable to a sudden sell-off, as has happened today.
Fundamentals remain bullish, while on Dec. 3, Statistics Canada is releasing its final grain production estimates which could lead to a bullish surprise.
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