Despite a $7.90/metric ton drop in today's November canola contract in Tuesday's session, it remains only $10.40/mt from the contract high after coming within $.70/mt of testing the $527.30/mt high in Friday's trade.
Since the May 10 highs were reached, November soybeans have retraced nearly 5%, breaking through support of the contract's 20-day moving average on Tuesday, while November canola has retraced only 2%. The contract is seen in a sideways move on the weekly chart (not shown). This is despite significant moisture hitting some of the driest areas of Alberta and western Saskatchewan over the weekend which has significantly improved the overall prospects for the crop.
As seen in the middle-study of the attached chart, the Nov/Jan futures spread closed at minus $3.30/mt this session (January trading over the November). This weak carry represents roughly 30% of the cost of full carry; it is viewed as mildly bullish, given DTN methodology which views less than 33% of full carry bullish, while greater than 67% of full carry as bearish. Everything in-between is seen as neutral.
One only has to look further down the road to see the Jan/Mar spread closing at a weak carry of minus $.40/mt after struggling to move into a bullish inverse since May 9 (not shown). Meanwhile the March/May and the May/July spreads also reflect a weak carry of minus $.70/mt and minus $.90/mt, respectively.
This supportive activity in the new-crop futures also follows last week's AAFC estimates which call for a 700,000 mt carryout for the 2016/17 crop year, the tightest seen since 588,000 mt was carried out of 2012/13. That's assuming a 15.4-million-metric-ton crop while crushers and exporters share a 16 mmt pie evenly. This might be a tall order, given a current course that should result in 10 mmt of exports this crop year. Current estimates show stocks as a percentage of annual demand to reach 4.3% next crop year from an estimate of 7.4% this year, near the 4.2% reached in 2012/13 when prices reached fall highs on the continuous chart of near $655/mt.
As seen in the lower study, the stochastic momentum indicators have turned lower a number of times since mid-March, but have failed to sustain a move lower. The weekly chart seems to show these indicators drifting sideways.
Watch for a band of technical support ranging from $501/mt to $507.20/mt, consisting on the 20-day moving average, trend line support, as well as retracement support at $501. Psychological support at $500/mt may also be tested should this market turn lower.
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