Canada Markets

Old-Crop Canola's Reversal

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
Connect with Cliff:
March canola flashed a bullish outside-day trading bar on Jan. 12, while has gained $15.20/metric ton so far this week. Resistance on the daily chart is found at $518/mt, the 50% retracement of the move from the November high to the January low, along with the 50-day moving average at $518.30/mt. The second study points to momentum indicators pointing higher and the potential for the move to be extended, while the third study is the March/May spread which points to a neutral response by commercial traders. (DTN graphic by Nick Scalise)

Old-crop March canola has shown a rounding bottom reversal in recent days, with the canola market reacting to the move higher in the soybean market given uncertainty in South America this week along with a sharp drop in the Canadian dollar on Wednesday. This week's gains total $15.20/metric ton as of Wednesday's trade, breaching various levels of resistance on the way up while breaking out of the sideways range traded since the last few days of December.

This week's move has seen the price reach a high near technical resistance at $518/metric ton, the 50% retracement of the move from the November high of $540.70/mt to the January low of $495.20/mt. Further resistance lies nearby at the 50-day moving average at $518.20/mt. A move through these levels could lead to a further move to the 61.8% retracement level of $523.30/mt.

Stochastic momentum indicators on the second study continue to trend higher, while indicating that a further move could be made prior to prices reaching overbought territory above 80% on the chart. Perhaps one concern is noted on the third study, with the blue line representing the March/May spread which indicates a neutral response by commercial traders. While not shown, canola has lost ground relative to soybeans this week with the March canola contract trading at a discount relative to March soybeans (Canadian dollars/mt), which may be a supportive feature for canola but not at all a bullish signal.

Producers on the Prairies continue to make supplies of canola readily available. In week 23, or the week ending Jan. 8, producers delivered 397,500 mt into the licensed handling system, just slightly below the 404,400 mt delivered in the same week last year but 26.5% higher than the five-year average for this week. To date, 9.2436 million metric tons has been delivered, 14.2% higher than the same period last year. As well, commercial stocks in the licensed handling system were reported at 1.5292 mmt, 9% higher than the same point in time last year while 37% higher than the five-year average for this week.

While not shown, the new-crop November contract has posted the same recovery in recent days. The November has gained $12.50/mt so far this week, ending Wednesday just slightly higher than the 67% retracement of the move from the contract's December high to January low calculated at $505.30/mt. This could pave the way to a further move higher to the December high of $515/mt. The November/January spread weakened this session but remains at a weak carry of minus $1.80/mt (January over the November), which could be viewed as a slightly bullish view of fundamentals next crop year.

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 .