Canada Markets

Technical Selling Weighs on New-Crop Canola

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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New-crop canola led the move lower on Thursday. The November reached a four-week low while breaking both the 33% and 38.2% retracement levels of the move from the April low to the May high, along with the contract's 200-day moving average at $496.50/mt. The daily chart shows prices in over-sold territory (middle study), which may slow technical selling. The lower study shows commercial traders taking a less-bearish approach to trade, with the Nov/Jan spread narrowing/strengthening to minus $5.30/mt. (DTN graphic by Nick Scalise)

New-crop November canola reached a fresh four-week low this session to close $4.40/mt lower at $493.90/metric ton, while breaching retracement support at $497.10/mt and $495.10/mt as well as support of the contract's 200-day moving average calculated at $496.50/mt. Support was eventually found at the contract's 50-day moving average at $493.10/mt, while a breach of this level could result in a further move to $490.60/mt, the 50% retracement of the move from the contract's April low to the May high.

A key difference between this move and the move seen in new-crop soybeans this session is that the November/January canola spread narrowed this session, a sign of supportive commercial activity, while this spread widened or weakened in the case of soybeans, a bearish response by commercial traders of soybeans. The Nov/Jan spread ended at minus $5.30/mt, $.20/mt narrower this session.

This spread bears watching. Dow Jones reports given Thursday's interviews suggest improved weather across parts of the Prairies in coming days as a bearish feature. At the same time, DTN Senior Ag Meteorologist Joel Burgio is pointing to chances that Alberta and northwest Saskatchewan will return to wet conditions late next week, the same areas that are already experiencing wet conditions and facing delayed planting. Saskatchewan Agriculture estimated that as much as 5% of the province's total acreage might not be seeded, while Alberta may follow with a similar outlook on Friday.

This week, Agriculture and Agri-Food Canada revised old-crop and new-crop ending stocks lower, based on the most recent reports released by Statistics Canada. 2016/17 ending stocks were revised to 600,000 mt from 1.1 million metric tons last month, while 2017/18 ending stocks were revised from 1.1 mmt to 350,000 mt. Canada hasn't experienced stocks this low since 1994. Both old-crop and new-crop estimates could be questioned for a number of reasons. It appears that old-crop demand, both crush and exports, are on track to exceed current estimates, even after the 500,000 mt hike in estimated canola exports. There are signs on the prairies that both crushers and exporters have narrowed basis levels this week, a sign that they are both still in the game. As well, in the words of one producer, "those acres estimated for 2017 will never get seeded."

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(CZ)

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