Very little has been reported in the past week since Reuters broke the story suggesting that China will tighten their tolerance of foreign material found in canola shipments from the current 2.5% to 1%.
To-date, media reports indicate varying reasons for this move. This ranges from a "scientific disagreement" over the potential transmission of blackleg fungus, as indicated by the Canola Council of Canada, to a simple barrier to trade. Reuters reported that China is sitting on 5.5 million tons of rapeseed oil. A tweet from the Canola Council of Canada convention in San Diego today reiterated one speaker's claim that there are two experts on China's oilseed supply and demand -- those who don't know and those that know they don't know.
The May canola contact lost $17.70/metric ton last week, reaching a low of $445.20/mt, the lowest weekly close since the week of May 4 2014. A fresh low of $435.50/mt was reached in Wednesday's trade, the lowest level on the continuous chart seen since December 2014, although prices rebounded sharply to close near the upper end of Wednesday's $17.40/mt trading range. As of Wednesday trade, retracement support at $445.80/mt as well as $438/mt along with psychological support at $440/mt has held, with today's close at $452.10/mt. Today's close was higher despite losses in soy oil, palm and rapeseed.
Despite the challenges faced by the exporters in reaching the 1% tolerance, which does not include sales already on the books, there exist some supportive commercial signals in the market. First, spreads have narrowed. The May/July spread weakened $1.10/mt last week to a $6/mt carry (July trading over the May), while has since narrowed by $2.50/mt so far this week to a $3.50/mt carry, the narrowest this spread has been since the week of Jan. 18 and an indication of a less-bearish commercial sentiment. A quick look at the new-crop November/January spread indicates that the spread has weakened (grown increasingly bearish) from minus $1.40/mt on Feb. 1 to a low of minus $5/mt on Feb. 23, although has since narrowed to minus $4.30/mt.
As well, the Vancouver cash basis was reported to narrow in Tuesday's trade this week from $25/mt over the May to $27/mt over the May, a sign of strengthening off-shore demand.
Despite the bearish news involving Canada's largest customer, the market may be showing signs of bottoming with a bullish outside day trading bar seen on the daily chart.
Cliff Jamieson can be reached at email@example.com
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