The canola market really hasn't reacted as one would expect given a 20% increase in expected production for 2015 from the October report to the December report, as indicated in Statistics Canada's Dec. 4 estimates. Last week's report hiked expected production from 14.3 million metric tons to 17.2 mmt, well-above the average of pre-report estimates in and around the 15.5-mmt mark.
Since this release, the nearby January contract has traded sideways within the $11.80/mt range traded on Dec. 4, with today's close only $.20/mt lower than last week's weekly close. Today's close was $4.70/mt higher and resulted in the first close above the contract's 50-day moving average in five days and only the second time in the past 22 sessions.
Over a longer period of time, the contract has traded within a $30.30/mt range since Aug. 18, between a low of $457/mt and a high of $487.30/mt, with today's close in the upper one-half of the range by a slim margin. The market seems content in sideways trade, with retracement resistance seen at $475.70/mt, the 61.8% retracement of the move from the Oct. 22 high to the Nov. 23 low, which has prevented a move higher in five of the past seven sessions.
The lower-study of the attached chart shows spreads narrowing in Thursday's trade, a sign of supportive commercial buying. So far this week, the Jan/March spread has widened by $.80/mt to a $9.60 carry, a bearish sign driven by more than adequate supplies available in the front end, while the March/May and the May/July have narrowed by $.50/mt and $.70/mt respectively this week, a less bearish response by commercial traders despite Statistics Canada estimating the country has produced the second largest crop on record.
One possible hint as to the recent strength in this market may be seen in Wednesday's USDA Oilseeds: World Markets and Trade report. While USDA estimates for global rapeseed and canola production included a sharp increase in Canada's production to 17.2 mmt from 15.5 mmt in its November report, the move was largely offset by a 1.150 mmt reduction in India's rapeseed production and a further 100,000 mt reduction by unnamed producers, likely Australia, for a net-increase in global production of only 450,000 mt. Global stocks/use remains relatively tight at 9.5%, as compared to 10.8% in 2014/15 and 11.2% in 2013/14.
Another factor to watch is Canada's crush disappearance. Strength in the soyoil market has boosted the Canadian Canola Board Margin Index to $91.93/mt against the January contract today, up sharply from the $46.47/mt reported a month ago and just $7.97/mt below the same date last year. While COPA will release its weekly crush data on Dec. 11, the latest report as of Dec. 2 showed the largest weekly crush in eight weeks, with the crush capacity utilization reported at 85.6%, almost six percentage points above the average of the previous four weeks.
Other factors supporting the market this week include a favorable move lower in the Canadian dollar, which has shed more than a cent against its U.S. counterpart.
Lastly, there is a chance that the numbers from Statistics Canada are simply not believed. The resilience of this market could be signaling that production will fail to reach the levels indicated in the government report.
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Cliff Jamieson can be reached at email@example.com
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