Canada Markets

May Canola Reaches its Lowest Level since June

By Cliff Jamieson , Canadian Grains Analyst
Today's $11.60/mt sell-off in the May canola contract reached the lowest level traded since the week of June 1 2015, while support was found at $458.10/mt, the 67% retracement of the move from the contract high to the contract low. The middle study shows momentum indicators turning lower, although they have yet to reach oversold levels below 20%. (DTN graphic by Nick Scalise)

The May canola contract finished $11.60 per metric ton lower Tuesday, the largest one-day loss seen in this contract since August 12 2015, while breaking out of the lower-end of the trading range which has been in place since the week of August 17.

Somme key levels of support were tested today and may face further challenges in the days ahead which could be instrumental in terms of preventing deeper losses. First is the 67% retracement of the move from the May contract's low at $422.20/mt to the contract high at $531/mt, which is found at $458.10/mt. Price dipped below this level Tuesday although late-session buying pared losses and forced a close above this support.

The longer-term continuous active chart (not shown) also shows today's low of $457.50/mt being just $.50/mt above weekly lows of $457/mt reached Feb. 9 on the March contract, as well as on Nov. 23 on the January contract. Another weekly low of $454/mt was reached last September, so one could view $454 to $457/mt as a range of potential support which could prevent a further slide to Fibonacci support at $445.80/mt on the continuous chart.

One further level of support which held in Tuesday's trade is the psychological level of $460/mt. The May contract recovered to close above $460 today, at $461.70/mt, just as it did on each of the two dates named when price dipped to the $457/mt level.

Unlike the soybean market, where commercial selling is weighing on prices, the canola market faced noncommercial selling this session, with cost-of-carry calculations suggesting more of a neutral view of market fundamentals held by commercial traders.

At the same time, grain companies have widened basis levels, with the average prairie-wide basis based on accessible internet quotes having widened $3.15/mt since Friday, to $20.13/mt under the May future. A similar weakening was also seen in the March delivery period, a sign that buyers are well-covered in the front-months. The average bid is just slightly above the $10/bushel level, a price-point which is sure to slow producer deliveries.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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