There are a number of factors coming together to support canola prices. Strength in outside oilseeds, Canadian dollar weakness as well as canola's price weakness relative to soybeans are acting to boost prices. As well, canola's own seasonal tendencies would suggest that on average, prices have gained approximately 6.5% from the first week in January to the first week in June, as indicated by the trend in the blue line on the attached chart. This seasonal high is reached at a level which is roughly 104.5% of the seasonal index.
Using this logic, the $442 per metric tonne weekly close in the first week in January would advance to approximately $470.70/mt by early June before prices face a seasonal downtrend which eventually reaches a seasonal low in the fourth week in September at roughly 95% of the seasonal index.
P[L1] D[0x0] M[300x250] OOP[F] ADUNIT T
Today's close in the May future ended at $463.20/mt, up $2.10/mt. Today's price reached a high of $466.80/mt although prices failed to hold above resistance. Resistance is marked by the May contract's 100-day moving average at $464.40/mt, while also at $465.10/mt, which is the 38.2% retracement of the move from the June 2013 high of $564.40/mt to the March 2014 low of $403.70/mt.
Of interest here is that canola's period of seasonal strength coincides with the seasonal strength seen in the Canadian dollar, which ultimately limits canola's price potential. Equityclock.com indicates that the Canadian dollar's period of price potential is from March 22 to April 30, with the loonie gaining in 24 out of 36 periods to achieve an average gain of .73%.
Canola's price weakness relative to soybeans is another source of support for prices. After reaching a recent low of $146.43/mt the week of Feb. 24 (canola trading under soybeans, Canadian dollars/mt) the discount has since been slashed to a discount of $103.18/mt as canola gains on soybean prices. Over the five-year period from Jan. 1 2009 to Dec. 31 2013, canola traded at an average premium to soybeans of $43.68/mt, as indicated by ProphetX analysis. This may give investors reasons to be fearful of holding short positions in canola and encourage additional buying interest.
Friday's May close of $461.10/mt is also found in the lower 30% of its five-year price probability, meaning that on average, nearby futures closing prices have been lower 30% of the time and higher 70% of the time. Buyers can use information such as this to determine the price probability of a further move in either direction, with current probabilities perhaps pointing to the potential for markets to remain supported.
Cliff Jamieson can be reached at email@example.com
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