Canada Markets

Has Old-Crop Canola Made its Move?

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Old-crop canola appears to be moving into a sideways trading range, while consolidating close to the lower-end of the wide-range traded the week of May 9. Monday's close was near unchanged after trading over a $7.10/mt trading range. The third study shows the July trading at a $3/mt premium to the November contract, a sign of front-end commercial demand. The lower study shows volume contracting for four consecutive sessions, perhaps signaling a lack of conviction by traders in the current short-term uptrend. (DTN graphic by Nick Scalise)

Since retracing from last week's sharp move higher in the old-crop canola contract, the market seems to have found solid chart support, while neither buyers nor sellers are showing commitment in either direction.

Thursday and Friday trade found support at the 38.2% retracement of the move from the March 2 low to the May 19 high at $504.70/metric ton, while Monday's trade held above the 33% retracement of the same uptrend at $510.10/mt. As well, trade continues to hold above the upward-sloping 20-day moving average, currently calculated at $504.50/mt. Trendline support (not shown), drawn from the March 2 low is also found at $506.20/mt.

The old-crop price is currently showing a lack of conviction by traders in either direction. After trading over a $7.10/mt trading range this session, today's high was finally able to trade above Friday's high during late-session trade while today's close ended only $.10/mt higher than Friday's close. The stochastic momentum indicators (second study) are turning sideways while in the neutral part of the chart.

The third study poses a challenge for market watchers. The July/November futures spread remains in a bullish inverse of $3/mt (July above the November), well below the $10.60/mt inverse shown for May 10, but still reflective of a bullish commercial sentiment favoring the old-crop trade. The challenge lies with the weakening cash basis, with today's average prairie basis based on accessible internet bids reported at $18.91/mt under the nearby July future, after having traded as narrow as $13.04/mt under the nearby future on April 19.

The true test will be the actual supply of seed on the Prairies, with current disappearance still ahead of the cumulative volume needed to reach the AAFC forecast for 2015/16 demand of 18.1 million metric tons. Commercial stocks as of Week 40, or the week ending May 8, were reported at 1.2824 mmt, down from the previous week but still 34.7% above the five-year average of 952,000 mt, leaving commercial traders well-supplied with seeding progress on the Prairies well-ahead of average pace. The recent spike to $544.60/mt allowed for cash sales at $12/bu. or higher ($529.10/mt) which will lead to increased deliveries when seeding on the Prairies ends.

The lower-study shows daily volume in the July contract falling for four consecutive sessions, from 28,184 contracts on May 10 to 7,785 contracts on Monday. This contraction seen in volume combined with the lack of direction in price signals a move into a period of consolidation. Fresh information or buying interest may be needed to extend the current uptrend.

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DTN 360 Poll

This week's question asks whether you think the May 10 oilseed rally was a one-time opportunity for both old-crop and new-crop sales. You can weigh in with your thoughts on DTN's poll, found on the lower-right of your DTN Home Page.

We thank you for sharing your thoughts on this and past polls.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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