Canola futures ignored the bearish outside day trade seen on both old-crop and new-crop soybean charts as those markets appear to be moving into short-term downtrends with a sharp move lower of 21 3/4 cents on the July contract and 14 cents lower on the November contract.
After reaching a high of $506.20/mt on Wednesday, the November canola contract's first move above $500/mt while closing at $500.50/mt, Thursday's session held mostly above the $500 market through most of the session, although a late-session burst of selling led to a move into negative territory and the close ended $1/mt lower at $499.50/mt. Thursday's trade resulted in an inside day trading bar, with the day's high and low within the range traded on Wednesday, a sign of indecision where neither buyers or sellers had the upper hand in controlling trade. Trade was light, however, with only 12,331 contracts reported to trade, down sharply from the 35,427 contracts reported on Wednesday.
In some cases, the inside day trading bar can act as a sign of exhaustion at the end of an uptrend. Over the past two weeks, there have been three inside bars, although the first two resulted in a close near the top of the day's trading range while Thursday's bar shows a close at the bottom of the trading range, which may be a sign of a waning sentiment that has been behind the trend.
The middle study shows the recent trend in the November/January futures spread. The current spread of minus $3.40/mt represents just over 30% of the cost of full carry between these two futures, which is viewed as slightly bullish in DTN analysis (below 33%) although could quickly weaken on commercial selling to be considered a bearish spread.
The lower study shows the stochastic momentum indicators on the daily chart forming a bearish crossover in overbought territory, which could trigger further noncommercial selling to perpetuate the trend.
Another sign that this market may turn is weakening basis across the prairies, both old crop and new. Over the past two days, the spot basis has widened (weakened) $2.55/bu to $15.85/mt under the July while September delivery weakened $2.32/mt to $28.05/mt under the November, based on accessible internet quotes.
Friday's Statistics Canada March 31 stocks report will provide further insight into Canadian stocks and may set the tone for the market moving forward. Producers may want to consider new-crop coverage if the market shows further signs of weakness and follows soybeans into a downtrend.
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