Canada Markets

January Canola Range-Bound as Soybeans Test Contract Lows

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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January canola closed higher and above support today while the soybean market tested contract lows. The third study shows canola's premium relative to soybeans in Canadian dollars breaking above resistance this week to reach its highest level since mid-July. The lower study indicates the March/May spread (red line) and May/July spread (purple line) trading as a weak carry, reflecting solid commercial demand through the balance of the crop year. (DTN graphic by Nick Scalise)

Canola prices performed much better than soybeans this week, with support coming from commercial demand while the Canadian dollar reached a five-week low with today's slide. While today's intra-day slide in soybeans resulted in a successful test of the January contract's lows reached in August and September, January canola remained poised above the daily lows reached on Wednesday and Thursday and moved back above resistance of the contract's 20 and 50-day moving averages. Over the course of the week, the January canola contract gained $6.30/mt while the January soybean contract lost 18 1/2 cents, its third consecutive weekly loss.

For the past eight weeks, January canola has traded sideways within a $19.50/mt trading range, from a low of $467.80 to a high of $487.30/mt, as the market searches for direction. During that time, Canada's crop has been estimated to be larger with yet another upward revision expected by Statistics Canada in early December.

At the same time, demand remains strong. Friday's COPA report shows crush, as of the week ending Nov. 4, at 2.008 million metric tons, 6.2% above the year-ago pace. Week 13 export data was not released by the Canadian Grain Commission today due to a shift in their service to the Canada.ca website, although exports were 7.4% ahead of last year's pace (licensed exports only), as of week 12 data.

The USDA's September Oilseeds: World Markets and Trade analysis suggested that both palm and soybean oil will see use expanded in 2015/16 given an expected reduction in production of smaller oilseeds such as rapeseed, sunflower seed and cottonseed and a move on the part of buyers to purchase less expensive oils. With the Canadian crop year now approximately 25% complete, this theory has perhaps failed to materialize. Canada's demand is above year-ago levels while the premium for January canola over January soybeans has broken out of a sideways trend this week to close at $55.83/mt, its highest level since early July. This is shown in the third study of the attached graphic.

The lower study indicates continued commercial buying interest resulting in a weak carry between contracts later this crop year, with the March/May ending at minus $2/mt (red line, May above the March) and the May/July ending at minus $.80/mt (purple line). This could perhaps be viewed as a slightly bearish or even borderline bullish view of market fundamentals held by commercial traders.

DTN's Five-Year Seasonality carts indicate that canola tends to move sideways/lower during November before gaining strength during December.


DTN 360 Poll

This week's poll asks if you think oilseeds have any chance of a significant rally this crop year. You can weigh in with your thoughts on DTN's 360 poll found on the lower right of your DTN Homepage.

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

(ES)

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