Canada Markets

Old-Crop Canola Struggles to Sustain Upward Momentum

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Since Feb. 4, May canola has traded in a $26.40/mt range between a low of $447.50/mt and a high of $473.90/mt. Today's trade saw a four-day rally snapped with a close below the 20- and 50-day moving averages after testing retracement resistance. The middle study shows a potential shift in momentum on the daily chart, while the lower study indicates a weak May/July carry which suggests continued bullish commercial behavior. (DTN graphic by Nick Scalise)

Last week's four-day rally in May canola was broken this session with a $3.70 per metric ton loss to close at $458.30/mt after morning gains above technical resistance of $464.10/mt failed to hold. This level represents the 50% retracement of the move from the April 2014 high to the September 2014 low, and has posed challenges for this market over the past five weeks. Today's selling pressure forced a close below the contract's 20- and 50-day moving averages, with potential support moving forward at last week's low of $448.30/mt and the trading-range low of $447.50/mt. Today's close remains above the mid-point of the range traded since Feb. 4.

Canola's crush data for the week ending April 1 was reported by Canadian Oilseed Processors Association at 138,868 mt, the smallest volume in three weeks although follows a record weekly crush of 162,166 mt in the previous week. Year-to-date crush is on track to achieve the 7.2 million metric ton target set by AAFC, while expanded crush in Western Canada with the opening of the Cargill plant at Camrose, Alberta will see this target likely exceeded prior to the end of July.

Exports remain another story. Week 34 exports reported by the Canadian Grain Commission for the week ending March 29 were reported at 218,500 mt, the highest weekly volume reported in eight weeks. Year-to-date exports through licensed facilities total 5.3353 mmt, roughly 680,000 mt below the cumulative value needed to reach the annual target of 9.2 mmt set by AAFC, although this shortfall has dipped for the first time in eight weeks in week 34 data while unlicensed exports, as of the end of January, totaled 159,121 mt which will further narrow the gap.

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Outside markets that could be worth watching include Malaysian crude palm oil and the U.S. soybean oil market. Indonesia confirmed speculation of an export tax on palm oil, expected to be $50/ton, a move to bolster its domestic biodiesel market while also generating funding for research and development, as well as replanting. The impact of this move has suggested a bump in demand in Malaysian crude oil, which saw futures on these markets finish higher on Monday.

As well, U.S. soybean oil futures for May delivery finished higher for the third day although failed to hold gains over the contract's 50-day moving average after reaching the highest level seen since March 6. Momentum on the daily and weekly chart is showing bullish upward potential. Another positive feature to watch is the May/July soybean oil spread, which has narrowed since March 31 from minus .23 cents/lb to minus .18 after breaking a downward-sloping trendline which has been in place since Feb. 27, a sign of a less bearish sentiment in the commercial trade.

Working against the canola market is the high level of commercial stocks, which was reported at 1.5689 mmt, slightly lower than last week, but still 39% higher than the year-ago inventory. Week 34 producer deliveries, at 354,800 mt, is near the average of the previous three weeks which are the highest weekly deliveries seen since Week 10.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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