Canada Markets

November Canola looking to Punch through Resistance

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
Connect with Cliff:
Despite the challenges faced in the canola market, the November contract moved above resistance for the third time in four sessions on Monday, while reaching fresh highs in the uptrends seen on both the daily and weekly charts. The first study shows daily momentum indicators in over-bought territory, leaving the market vulnerable to a sudden change in direction, while spreads ended mixed on Monday. (DTN graphic by Nick Scalise)

The canola future continues to ignore the bearish factors in the marketplace, while basis is doing all the heavy-lifting in terms of matching current supply with demand.

In advance of Tuesday's Statistics Canada Production of principal field crop report, a Commodity News Service poll reported by Producer.com indicates an expected range of production of 15.9 to 20 million metric tons, which compares to the 17.23 mmt production estimated in 2015 and the 2013 record production of 18.551 mmt. 2016 could easily see a record crop, with some talk that production could even exceed 20 mmt on the Prairies.

Along with the talk of a large crop comes ongoing concerns over looming dockage changes required in exports to China which could impact roughly 40% of Canada's export program. As well, DTN's Five-Year Seasonal Index chart would suggest we are just ahead of a period of normal seasonal weakness which sees prices drift lower over September.

Despite these concerns, the November canola contract challenged resistance at $471.80/mt for the fourth consecutive day, although has fallen back to close near the mid-point of the range each day. Today's move saw a fresh high reached in the uptrend seen on the daily chart, while also breaking above the range traded over the past five weeks. The resistance at $471.80/mt represents the 33% retracement of the move from the June high to the July low, while a breach of this level would then see this price face resistance of the contract's 50-day moving average and the 38.2% retracement of the same downtrend at $476.50/mt.

The spreads closed mixed Monday, as seen on the lower study, with the nearby Nov/Jan spread ending $.20/mt weaker at minus $6.50/mt, while the carry in the Jan/March and the March/May future was pared or the spreads narrowed, a signal of a less-bearish response by commercial traders. Cost of carry calculations point to a neutral sentiment by commercial traders in the nearby Nov/Jan spread with futures spreads late in the crop year signaling a bullish sentiment for the May/July spread and a near-bullish sentiment in the March/May spread, defined as the spread representing less than 33% of commercial carry.

While the futures market may be showing confusing signs, this is not the case with basis. The average prairie basis weakened slightly to $39.58/mt under the November, the weakest calculated since May 2014 as the Prairies dealt with the impacts of a record 2013 crop and the railway failures that followed. This time last year this same spread was calculated at roughly $20 under, roughly half of what is seen today, based on available internet bids.

Tuesday's Statistics Canada report will be released at 8:30 ET on Tuesday, while may set the tone for trade going forward.


DTN 360 Poll

This week's poll asks whether you believe we've seen the lows in grain futures. You can weigh in with your thoughts on this poll question, found at the lower-right side of your DTN Home Page.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

Comments

To comment, please Log In or Join our Community .