The new-crop November canola contract has recently showed signs of fatigue, with Wednesday's trade reaching a fresh contract high of $532 per metric ton only to face noncommercial selling pressure to force a close at $525.30/mt, within $0.10/mt of the lower end of the $6.80/mt range traded on Wednesday.
Thursday's trade saw further troubling signs for this contract, sparked by heavy selling in the soy complex, with a combination of commercial and noncommercial selling taking place in both soybeans and soymeal.
As seen on the attached chart, November canola broke through the support of the upward-sloping trendline which has been in place since the March 2 low of $447.70/mt. The third study shows the stochastic momentum indicators which signaled a bearish crossover of indicators on Wednesday to signal an end to the short-term uptrend. As well, Thursday's trade plunged through the contract's 20-day moving average calculated at $522.30/mt, with Thursday's close being the first close below this support line seen since April 15.
The lower study shows Thursday's move taking place on the second-highest daily volume seen over the life of the contract of roughly 22,265 contracts. This was the highest daily volume reported since the reaction to the May 10 USDA supply and demand report, suggesting the move was a result of conviction after buying interest at the contract highs was exhausted.
As seen in the second study, the November/January futures spread weakened on Thursday to minus $3.80/mt (January over the November), which continues to reflect a carry market, although a relatively weak carry given the cost of full carry, which suggests a cautious approach by commercial traders.
New-crop basis levels, however, suggest a growing bearish sentiment. Thursday's September delivery basis weakened $1.50/mt in the past two days to $34.86/mt under the November future. At the beginning of June, this same basis was calculated at $32.93/mt under and was $25.73/mt under in early May. This time last year, September delivery was bid at $23.89 under the November.
Given a further move lower, potential technical support may be found at the contract's 50-day moving average of $506.80/mt or the 33% retracement of the move from the March low to the June high, found at $504.20/mt. The weekly chart shows a bearish outside trading bar formed so far this week, assuming that this week's close is lower than last week's, which could suggest that a further move is possible. The downward trend in the momentum indicators on the daily chart would also support a further move to support.
For the near future, canola may continue to follow the gyrations of the soybean market as traders respond to the latest weather reports. Over time, the tight global fundamentals for rapeseed/canola may see canola less influenced by the soy complex. According to the USDA's latest Oilseeds: World Markets and Trade, global rapeseed stocks are expected to fall 30% in the upcoming year to 3.547 million metric tons, or just 5.3% of the projected global use in 2016/17. This doesn't leave much room for surprises.
Cliff Jamieson can be reached at email@example.com
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