After four consecutive weeks of posting lower highs and lower lows on the November canola weekly chart, canola bounced in today's trade, largely following the lead of the U.S. soybean market.
As seen on the attached chart, November canola continues to hold above its long-term trendline as depicted by the upward-sloping blue line, after moving below this support in last week's trade for the first time since November 2011. Trendline support remains at $533.40/mt.
Once again, prices moved above the resistance of the 38.2% retracement of the move lower from a high of $582.50 per metric tonne in July 2012 to a low of $518/mt reached in December 2012. Should this move hold, prices may be inclined for a retest of the 50% retracement of this same trend at $550.30/mt.
The second study represents the weekly stochastic momentum indicators, which present signs of turning higher given the upward move in the %k indicator (blue line) in recent days, which may be signaling the initial stages of a move towards upward momentum. We will watch this further for signs of a crossing of the red and blue lines in the near future.
Not shown is the daily Jan/March spread, which closed unchanged in today's market, although has bounced from a low of $3.40/mt carry (March above the January) in recent days to the most recent $1.60/mt carry. Commercial buying interest is behind this small move which bears watching.
While Vancouver cash canola has lately seen its export basis erode to the current $60/mt over the November, a level which is uncompetitive with many current Prairies bids, crushers continue to have to bid aggressively for tight supplies. The Canadian Canola Board Margin Index, which is posted daily by ICE Futures Canada, indicates the nearby canola margin to be at $91.36/mt based on closing markets, which compares to $76.17/mt a week ago, $48.72/mt a month ago and $39.39/mt a year ago. This number has improved from the single-digit margins reported earlier this winter and ensures the ongoing chase for old-crop seed will continue. This will continue to be a supportive feature in this market.
Cliff Jamieson can be reached at firstname.lastname@example.org
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