Canada Markets

Canola Market Lacks Signs of Urgency Heading into 2017/18

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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DTN's Five-Year Price Distribution chart shows that the November canola close of $510.30/metric ton last week (green bar) can be viewed as neutral for the contract for that specific week -- 47% of the time it has closed higher, 53% of the time it has closed lower during the same week over the past five years. The top one-third of the price distribution is found at prices above $515.30/mt. (DTN graphic by Nick Scalise)

Monday marks the last day of the 2016/17 crop year, which will be one for the canola record book, with exports set to come close, if not exceed 11 million metric tons while crush has already topped 9 mmt.

Despite the uncertainty surrounding the level of 2016/17 carryout stocks, combined with the declining crop conditions shown for a significant area of the Prairies and the expected need to ration stocks in the 2017/18 crop year, markets are showing little sense of urgency.

As indicated on DTN's Five-Year Price Distribution chart, last week's close has ended higher almost as many times as it has ended lower, given the same week's trade over the past five years. Last week's close of $510.30/metric ton even fell short of the top one-third of the range of prices traded for the same week over the past five-years, marked by the orange bar on the graphic at $515.30/mt.

Another sign of a lack of urgency in today's trade is weakening spreads seen for the Nov/Jan, the Jan/March and the March/May futures in today's trade. The latter spread traded as a bullish inverse as recent as July 19, although this has since given way to a weak carry of $2.10/mt. Weakening cash basis also signals a waning front-end demand as buyers wait patiently for new-crop arrival.

While last week's total volume increased to 80,189 contracts, this activity is lower than seven of the past eight trading weeks. Canola's five-year seasonal index points to a typical downward trend in price into mid-September to reach a seasonal low, although the potential for an earlier harvest could see this low reached sooner than normal.

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

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