Canada Markets

Commercial Bearishness an Anchor on New-Crop Canola

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The November canola chart shows price facing resistance in the $514 to $515/mt range in late November/early December, the $507.70 to $508.80/mt range in late January and the $504.60 to $505.20/mt range over the past six days. The lower study shows the Nov/Jan spread weakening, breaking through previous support on Monday, a sign of growing commercial bearishness. (DTN graphic by Nick Scalise)

The media has printed a number of warnings surrounding new-crop canola and soybeans in recent weeks. A record South American soybean harvest could be followed by a record planted acreage of United States soybeans. AAFC's most recent estimates have included a 3% increase in acres seeded to canola in 2017 to a record 21 million acres. In addition, last week we discussed current estimates that suggest that palm oil production will sharply rebound this year following the drought-reduced harvest in 2016.

The attached chart shows the November canola daily chart struggling with various levels of resistance over the past few months. Over an eight-day period between Nov. 25 and Dec. 6, daily highs struggled with resistance in the $514 to $515/mt range.

Look ahead into January trade, the contract price struggled with resistance in the $507.70 to $508.80/mt range over a seven-day period between Jan. 19 and Jan. 27. While Monday's close was $2.80/mt higher, daily highs over the past six sessions could signal yet another area of lower resistance found in the $504.60/mt to $505.20/mt range.

The new-crop forward curve, or a line connecting consecutive daily closes, points to a bearish upward-sloping line for futures contracts in the 2017/18 crop year. Who's bearish and who's bullish? The lower-study on the attached chart shows the November/January spread breaking through chart support in Monday's trade, with the spread or carry increasing $.70/mt from minus $4.30/mt on Friday to minus $5/mt on Monday. This is a sign of growing commercial bearishness and bears watching.

Nearby support lies at the contract's 50-day moving average at $501.40/mt, the 20-day at $500.60/mt as well as $500/mt, which represents not only a psychological support level, but also the 38.2% retracement of the move from the January low to the January high.

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

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(ES)

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