Since Dec. 7, the new-crop November canola contract has traded between a high of $500/mt reached on Dec. 8 and a low of $482/metric ton reached on Jan.7. Wednesday's trade ended at $494.70/mt, up $3.00/mt, with trade consolidating within Tuesday's trading range as well as within last week's trading range.
The nearby March contract has tested various levels of support this week, nearing the lower-end of the range traded over almost eight weeks; the new-crop contract continues to hold within striking distance of the contract high of $500, while holding above the support of major moving averages.
The November contract has finished below $500/mt on the last day of January trade in two of the five years. The November 2015 contract closed at $435.20/mt on Jan. 30 2015 and the November 2014 contract ended at $464.40/mt as of Jan. 31 2014. Over the five years between 2011 and 2015, the November contract averaged a $10.52/mt move higher over February, moving higher in three of the five years. As well, the November contract averaged a $25.62/mt move higher from the end of January through the end of May, with a move higher seen in all five years. This is a period of old-crop seasonal strength, which tends to lend support for new-crop trade.
As seen in the middle study of the attached chart, the November/January spread has remained constant at a $1.50/mt carry over the past three sessions, while has narrowed from a $4/mt carry reached on December 23, a sign of a less bearish response by the commercial trade.
Agriculture and Agri-Food Canada's January supply and demand estimates, which includes a first look ahead at the 2016/17 crop year, indicates that canola acres will increase in Canada in 2016, given canola's projected returns which are superior to a number of competing alternatives. Supplies in 2016/17 are expected to be 6.6% lower than the current crop year, given lower carry-in stocks, while an expected reduction in both export and crush demand is expected to result in ending stocks of 1.2 million metric tons, a four-year low which results in a very tight stocks/use ratio of 7%. AAFC's 2016/17 projections include an estimate for producer returns which range from $510 to $550/mt, well-above current levels.
The wild-card could be 2015 production levels, with Producer.com reporting one trade estimate for 2015 production at 16 mmt, well-below the current 17.2 mmt estimate released by Statistics Canada in December. Should this be the case, current government projections for 2015/16 demand and ending stocks could be too high. The Feb. 4 Statistics Canada Stocks of principal field crops report will be watched closely.
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Cliff Jamieson can be reached at email@example.com
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