Canada Markets

European Rapeseed Sending Positive Technical Signals

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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November Euronext rapeseed closed higher for the fifth consecutive session Tuesday, reaching more than a six-week high. Price gapped higher on Friday, then again on Monday, while has taken out a double-top formed in July. The lower study shows the Nov/Feb spread shown as a bullish inverse, while the blue line in the second study highlights the canola/rapeseed spread which shows canola price weakening against rapeseed since mid-June, shown in U.S. dollars.

Just days away from the USDA's monthly data release which is scheduled for Friday, the USDA's Foreign Agricultural Service released their EU-28 Oilseeds Market Update. The FAS has pegged European Union rapeseed production at 21.5 million metric tons, slightly higher than the USDA's official estimate of 21.200 mmt, although below the official estimate of 22.046 mmt for 2015/16. While there has been ample coverage of expected production losses in Western Europe due to excessive rains, increased production in Eastern European countries such as Estonia, Latvia and Lithuania are expected to offset some of the losses.

While the FAS report sees higher available supplies than reported by the USDA in July, they also are estimating a higher crush volume and a tighter carryout. Crush is estimated at 23.7 mmt, 700,000 mt higher than the USDA's July estimate, while ending stocks are estimated at 825,000 mt, 311,000 mt lower than the July USDA estimate and 48% lower than the 2015/16 official USDA estimate of 1.686 mmt. Note that the July World Oilseeds and Trade report released by the USDA estimated total global ending stocks at a 3.678 mmt, or just 5.4% of the estimated global use. Global rapeseed stocks are already expected to be extremely tight and any further reductions in stocks should be viewed as bullish.

As seen on the attached chart of November Euronext rapeseed, activity over the past few days have seen a number of positive technical signals presented. The November has closed higher for five consecutive sessions, reaching a more than six-week high this session. This short-term move higher also shows a bullish gap higher in trade on Friday and then again in Monday's trade. Monday's move this week saw price break through resistance of both the 50-day moving average (blue line) and the 100-day moving average (brown line), as well as the double-top formed on highs reached on July 14 and July 21. As well, the move cleared the 50% retracement of the move from the June 13 high to the July 8 low. To compare this to canola, today's move in canola saw the November canola contract test the 23.6% retracement of the move from the June high to the July low.

So what are the technical signs telling us in this market? The move through the 50% retracement level could pave the way to a continued move to the 61.8% retracement of the same downtrend, which is found at EUR353.53. Further resistance lies at the 67% retracement of the same downtrend at EUR375.37/mt, while clearing this level, further resistance could be encountered at the upper-end of a gap formed in the previous downtrend on June 16 trade, found at EUR377/mt.

While the calculations are not shown on the attached chart, the chart pattern from the market activity starting on June 22 could perhaps be viewed as an inverted head and shoulders pattern. The measuring ability for this pattern (distance from neckline to the bottom of the head equals the distance from the neckline to the top of the expected move) points to a potential move to EUR388.91/mt, which would exceed the June high.

The second study shows the November future trading at a EUR2/mt inverse or premium to the February contract, a sign of bullish commercial sentiment. While short-term momentum indicators are entering over-bought territory (first study), the weekly indicators are trending higher after recently moving into an uptrend and point to the potential for a continued move higher.

While the move higher could be viewed as supportive for canola in time, the canola price is seen weakening against rapeseed in recent trade, as seen by the blue line on the second study. As recently as June 13, canola traded at a USD$11.60 discount to rapeseed, while is roughly USD$63/mt below rapeseed today. This is weaker than normal and should prove supportive for canola. In 2014/15, canola prices averaged USD$45.83 under rapeseed, while in 2013/214, canola averaged USD$36.58 below rapeseed.

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

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