January canola ended $1.80 per metric ton lower Thursday to end at $465.30/mt, after reaching the contract's lowest level traded since Sept. 8. This is the third consecutive daily loss for the January contract. Weekly spread charts are showing the January/March, the March/May and the May/July spreads weakening over the course of the week as commercial traders have a growing comfort level with the availability of supplies even though both crush and exports remain above year-ago levels.
The question remains how far down canola prices can move prior to entering its period of major seasonal strength, which on average has begun in the second week of January over the past five years according to DTN's Five-Year Seasonal Chart.
The attached chart is the continuous active weekly chart for canola. Fibonacci retracement lines have been drawn based on the move from the September 2014 weekly low of $388/mt to the June 29 2015 weekly high of $539.40/mt. The 50% retracement line, found at $463.70/mt, has acted as a floor for prices over the past ten weeks. The one weekly close below this support was seen in the week of Aug. 31, with a correction seen the week after to levels above this support.
Given a move below this support, a test of the Aug. 31 weekly low of $454/bu could take place, while further weakness could see a move to the 61.8% retracement of the discussed uptrend found at $445.80/mt, which supported trade on this chart in the 17 weeks between the week of Jan. 12 and the week of May 4 2015.
Given a move higher, resistance could be uncovered at the 38.2% retracement of the move from the June 29 weekly high of $539.40/mt to the Aug. 31 week low of $454/mt, found at $486.60/mt (not shown).
As is normal this time of year, all eyes remain fixed on the potential for the South American soybean crop. To date, a number of major forecasters have bravely held to their forecasts of a record Brazilian crop of 100 mmt or greater. Thursday's South American Calling blog by DTN Correspondent Alastair Stewart hones in on the difficulties faced in the Mato Grosso region of Brazil, which when combined with the neighboring state of Goias, produces 38% of the country's soybeans.
In this piece, Alastair focuses on how October rains came late, were spotty and has led to replanting of many crops and a poor start to the early crop. The current El Nino event is still expected to bring sufficient rains to the crop in December and January, while the downside of the typical El Nino event is a rainy period that can last too long while hampering harvest.
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Cliff Jamieson can be reached at email@example.com
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