Canada Markets

March Canola Faces a Difficult Week

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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March canola closed lower for a fifth day, although reached positive territory in late-session trade to end $1.90/mt lower, after bouncing from mid-December lows. The first study shows the March/May and May/July spreads weakening during the week, but continue to reflect a bullish inverse. An addition to the blue bars on the lower study would show the noncommercial net-long position increasing to 74,055 contracts as of Jan. 11, the largest on record. (DTN ProphetX chart)

As seen on the attached chart, March canola broke out lower from a triangle consolidation pattern in Jan. 13 trade, falling below the contract's 50-day moving average that has triggered further technical selling, while finding support at mid-December lows in Jan. 14 trade. The March closed $1.90/metric ton lower, at $982.90/mt on Jan. 14, while $12.60/mt above the session's low.

Friday's support was seen at the mid-December low of roughly $975/mt. From Dec. 8 to Dec. 16, daily lows ranged from $969.80 to $975.60/mt, hitting $975/mt three times and $975.60/mt once. This range of support was tested in today's session, with the session's low at $970.30/mt.

It is interesting to note that the challenges facing the canola market are shifting from old crop to new crop. The first study shows the March/May spread weakening $10.90/mt, or by 50%, to $10.90/mt during the past week (blue line). The brown line shows the May/July spread weakening $24/mt during the week to $26.20/mt. Meanwhile, not shown, is the Nov22/Jan23 spread that strengthened $0.50/mt during the week to $4.70/mt, contributing to the new-crop contract's fifth consecutive higher close on the weekly chart.

Since the week of July 26, or for the past 24 weeks, focus has been placed on the growing noncommercial net-long position. The risk of this speculative position, which reached a record high of 74,055 contracts in the week ending Jan. 11 (this data-point is missing on the attached chart), is that a sudden, widespread change in sentiment can lead to a sharp correction. This is clearly seen this week, with a $52.20/mt drop in the March contract, the largest weekly drop on the continuous active chart since the week of April 26.

It will require a shift in focus to canola's tight fundamental situation and the price required to ration tight supplies until new crop for prices to recover.

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