Canada Markets

Price action on the January daily chart (not shown) does not appear encouraging. Futures bounced off the support of the contract's 20-day moving average on Nov. 28, while meeting resistance from the contract's 50-day moving average on Dec. 3, only to move $2.10 per metric tonne lower today to trade below the 20-day moving average, but to retrace and close above this support level. Both moving averages are trending lower and have been for all November.

At the same time, as suggested by DTN Senior Analyst Darin Newsom in his recent Technically Speaking blog (Jan. Beans' Bullish Signal, Dec. 1), the January weekly canola chart is perhaps telling a different story, just as seen on the soybean chart.

First of all, the attached January weekly chart shows that current trade continues to trade above the support of its 50-week moving average (today's close was $589.80/mt as compared to the moving-average at $581.80/mt.) This moving average continues to trend higher and has been trending higher since the end of June.

Secondly, a case that is made by Darin on the weekly soybean chart is that a bullish crossover of the stochastic indicators in oversold territory has occurred. The weekly soybean chart indicates this cross-over taking place last week, with the faster moving K or blue line moving above the slower moving D or red line, while both are within the oversold regions, or below 20. This same scenario took place last week on the canola weekly chart (middle chart). While impossible to see on this size of chart, today's close indicates the blue line at 20.58 and the red line at 19.44. This crossover has not taken place on this canola chart since the week of Nov. 28, 2011. At that particular time, this move spelled out the beginning of a trend which moved futures from the November low of $483.60 to the $657.50/mt high in September 2012. While not distinguishable on the attached chart, current stochastic indicators are trending higher out of the oversold region which may lead to more technical buying.

Last of all, as is the case with soybeans, a rally at this point would be consistent with the five-year seasonal chart for canola (not shown), which indicates an approximate 5% return from the first week in December through to the end of the month. From there, futures during the past five years have averaged a further 8% gain from the beginning of January through to the middle of February.

Canola's futures spreads are also bullish in nature. As seen on the bottom chart, the nearby Jan/Mar spread (black line) has reached a recent low of a 20-cent inverse (January trading over the March) the week of Nov. 26 and has since strengthened to a 60-cent inverse. The Mar/May spread (red line) reached a low of a 50-cent inverse the week of Nov. 19 and is now at 90 cents, while the May/July spread (green line) reached a recent low of $1.70/mt the week of Oct. 22 and is now at a $3.60/mt inverse. These spreads are certainly painting a picture of a bullish fundamental situation, most noticeable late in the crop year.

Tomorrow's Statistics Canada report on canola production may shed light on the current ideas for this year's canola production, with trade estimates indicating a range of 13 mmt to 14.4 mmt, as compared to the most recent forecast of 13.4 mmt. Regardless of where the chips may fall, stocks are tight given the current rate of disappearance. Tomorrow could prove to be an interesting day.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

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