Canada Markets

Historically, canola prices have been highly sensitive to the direction of the soybean market. At last year's Grainworld conference in Winnipeg, a highly respected canola trader flashed a picture of the Endeavor space shuttle being transported on top of a much larger jumbo jet, suggesting that the huge soybean market would control the overall direction of travel as did the jumbo jet hauling the space shuttle.

This is not the case with the present market. As recently as Nov. 21, the March canola contract traded at a modest $4.11 per metric tonne premium to soybeans in Canadian dollars per metric tonne, although today's snapshot in time indicated March canola trading at a $102.96/mt discount to March soybeans. The high for the March contract shows the March canola contract trading at a $110/mt premium to soybeans in the summer of 2012.

The explanation is seen in the charts for soybean's products, with March soymeal just $9.40/ton away from testing contract highs, while March soybean oil has consolidated above contract lows over the past five sessions, after reaching nine consecutive daily lows. Robust demand for meal is a double-edged sword as it leads to a buildup in oil prices which further depresses the market.

Canola's pricing is also highly tied to the lack of movement off of the Prairies due to logistical challenges. Oil World reported to Bloomberg that Canada's share of the global trade in the July to November period has fallen from 66% last year to 49% this year. A noted swing in global exports was noted in Ukraine, who has doubled exports to 1.95 mmt in the same period. This is at a time when both the European Union and China have boosted imports.

The March canola contract reached another contract low at $421.40/mt in overnight trade, with long-term potential chart support noted at $412/mt on the continuous chart.

Are you attending the Crop Production Show Wednesday? Please feel free to stop by and say hello at the DTN booth in Hall B.

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

(ES)

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