Canada Markets

Old-Crop Canola Extends Losses

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The May canola contract hit two-month lows on Wednesday, breaching support, which likely triggered further technical selling. Selling has intensified this week, with the third study showing daily volume higher this week than seen late last week. The lower study shows the May/July spread, viewed as a measure of commercial trader sentiment, weakening this week to the lowest level seen since Jan. 4. (DTN graphic by Nick Scalise)

May canola closed lower for the fifth consecutive day on Wednesday, ending $3.40 per metric ton lower at $510.80/mt. This brings the losses to a total of $16.40/mt over the past five sessions, which began on March 9.

Three potentially significant levels of support were breached on Wednesday. First is the 67% retracement of the move from the contract's January low to February high, which is calculated at $513.80/mt. The second area of support breached could be viewed at the double-bottom formed from the Feb. 1 low of $512.80/mt and the Feb. 27 low of $512.30/mt.

As well, a pattern that we have been watching is a head-and-shoulders pattern that began roughly January 17/18. As seen on the attached chart, the pattern achieved a left-shoulder high on Jan. 24, the high for the head was realized on Feb. 10 and the high on the right shoulder was reached on March 6. The downward-sloping blue line forms a possible neckline for this pattern, which was breached in Wednesday's trade at $511.90/mt to complete the pattern. This pattern is suggested to have predictive abilities, with the measured distance from the neckline to the head equal to the expected move lower from the neckline on the day it is breached. This would suggest a minimum price objective of $486.70/mt that could see the market return to early October lows.

Working against such a move are the crop's seasonal trend, which sees front-month trade reach highs into the summer months, support from the contract's 200-day moving average at $508/mt along with psychological support at $500/mt.

The lower-study on the attached chart is troublesome, with the May/July spread weakening $2/mt so far this week to minus $4.70/mt (July trading above the May), the weakest spread seen since the week of January 3. This follows a $1/mt weakening faced last week. Support on the weekly spread chart lies at minus $4.70/mt, then again at minus $5.30/mt. While this could be viewed as still a neutral view of market fundamentals held by commercial traders given the current carry as a percentage of full carry (roughly 41%, with a reading higher than 67% viewed as bearish) the spread has been weakening and bears watching.

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

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(ES)

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