Canada Markets

Since July 9, the November 2015 canola future has traded in an almost $40/mt range, between a high of $442.80/mt and a low of $404/mt, marked by the parallel blue lines on the attached chart. This range may have been permanently broken with a close of $444.60 on Wednesday with a further higher close of $445.80/mt in Thursday's trade.

In addition, the past two closes ended above the November contract's 200-day moving average, seemingly for the first time. Another technical factor is a rounded-bottom trading pattern seen when one draws a curved line joining the lows which start in July through the low in December and then arcs higher. This pattern is also confirmed by higher daily volume from December onward (not shown), which indicates a gradual shift in the supply/demand balance of the crop over the seven months in question.

Another factor to watch is the weak spreads as seen in the lower study of the attached chart. While spreads widened today, a sign of commercial selling, the new-crop contracts trade at a weak carry, suggesting only a mildly bearish sentiment on the part of commercial traders. The Nov/Jan spread ended at minus $2.70/mt (November trading below the January) while the January/March spread (blue line) is trading at minus $3.90/mt. The Nov/Jan spread is calculated to be trading at roughly 24.6% of the cost of full carry while the Jan/March is trading at roundly 36.7% of the cost of full carry. Both could be viewed as bullish numbers.

The current government estimate for 2014/15 carryout is 1.450 million metric tonnes, which results in a tight 8.7% stocks/use ratio which could remain supportive for canola prices. Even though December 31 stocks were reported at 11.103 mmt in Statistics Canada's recent stocks report, the higher end of pre-report trade estimates, last year's January 1 through July 31 disappearance is calculated at 10.043 mmt according to Statistics Canada data. This would result in an even tighter ending stocks figure of 1.06 mmt should last year's pace of disappearance be matched.

Cash basis levels for new crop November delivery (prairie average based on available internet bids) is calculated at $19.40/mt under the November, which is narrower than the $23 to $24 under seen in mid-January.

With crush capacity continuing to expand on the Prairies, producer seeding intentions and 2015 weather will be watched closely in the upcoming year.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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