The nearby March canola contract lost just $3 per metric ton this week, after trading over a narrow $10/mt range with a low of $480 and a high of $490/mt, ending the week at $481.70/mt. There seems ample support in this area, with the 50-day moving average, the 100-day moving average and the 200-day moving average all crowding in between $480.20/mt and $481.20/mt. Further support lies at the psychological level of $480/mt, which the market has not closed below since late November on the weekly chart, while $479.20/mt represents the 50% retirement of the move from Nov. 23 low to the Dec. 30 high which may also act to limit further moves lower.
As seen on the attached chart, the March contract has traded almost entirely within a $30 range since the week of Aug. 17, while that range has narrowed to $20/mt in the past seven weeks since the week of Dec. 7, as traders ponder the prospects of South America's production potential of soybeans.
One concern this week is a combination of weakening spreads, seen on the lower study of the attached charts, along with weakening basis further out through the end of the crop year. As seen on the attached chart, the March/May spread (black line) weakened or widened $1.30/mt to end at minus $8.50/mt this week, breaking chart support from late November in the process. The May/July spread also weakened $2.50/mt over the week to end at minus $5.10/mt, also breaking through chart support. Both of these moves signal a growing bearishness among commercial traders which bears watching. While the March/May spread is viewed as bearish, given ProphetX cost of carry tables at 78.6% of full carry, the May/July spread could currently be viewed as neutral, at 45.8% of full carry. Note that DTN methodology views spreads narrower than 33% of full carry to be viewed as bullish, while spreads wider than 67% of full carry are viewed as bearish.
Another signal of growing bearishness is weakening basis levels through the end of the crop year. While there was little movement on basis in the front end over the week, with the average prairie spot cash bid at $26.18/mt under the March based on available internet bids, basis levels in the April-through-July period weakened or widened between $.62/mt and $1.09/mt over the week signaling a growing comfort level later in the crop year.
The discussed signals of weakness appear despite solid demand. While the cumulative canola crush remains behind the pace needed to reach the current AAFC target of 8.2 million metric tons, cumulative exports remain ahead of the cumulative pace needed to reach the current 9.5 mmt export target by an even greater amount, with week 24 data reflecting roughly the first 46% of the crop year.
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