Canada Markets

Canola Futures Stall at Resistance

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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November canola continues to struggle with resistance including the 50-day, 100-day and 200-day moving averages along with retracement resistance at $499/metric ton. The second study shows stochastic momentum indicators moving sideways as prices inch towards overbought territory. The third study points to a less-bearish response on the part of commercial traders, with the Nov/Jan spread narrowing to a neutral minus $4.90/mt. (DTN graphic by Scott R Kemper)

After four consecutive higher closes, the November canola was reined in on Tuesday following a three-day weekend and after reaching a 10-day high early in the session only to face resistance. Tuesday's trade saw the November contract end $1.50/metric ton lower at $495.20/mt near the lower-end of the $3.20/mt range traded.

The higher Canadian dollar trade, which posted a one-quarter cent move against the U.S. dollar, along with weakness in soybeans, soybean oil, palm oil and rapeseed weighed on price this session. The November contract is facing a wall of technical resistance, which includes the 100-day moving average at $496.20/mt, the 200-day at $496.70/mt, the 50-day at $497.30/mt, retracement resistance at $499/mt, psychological resistance at $500/mt and retracement resistance at $501.60/mt. While reaching levels above the three moving averages was achieved this session in each of the past two sessions, technical selling weighed on prices that failed to sustain the move.

The overall short-term trend remains sideways given the inability for price to move above the September 12 high of $498.50/mt, although Tuesday's high came within $.20/mt of reaching this level.

While traders continue to search for some sort of catalyst needed to vault prices through nearby barriers, a number of supportive factors do exist. Last week's close of $496.70/mt was in the lower 23% of the range of prices traded over the past five years. At the same time, DTN's 5-Year Seasonal index points to a typical upward trend in prices seen over the next three weeks, while prices then tend to drift sideways through November and December.

A slowing of producer deliveries in late fall is one factor which supports the seasonal trend. In 2016/17, weekly producer deliveries into licensed facilities fell by 283,500 metric tons from week 9 to week 10, while substantial drops in volume were also noted in the week 9 through 11 periods in 2014/15 and 2015/16.

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At the same time, current demand is solid, with a combination of crush and exports in the latest week's report totaling 535,553 metric tons, which is over 200,000 higher than the same week in 2016.

As seen on the third study of the attached chart, the Nov/Jan spread has narrowed from minus $7/mt reached on Sept. 21 to minus $4.90/mt on Tuesday (lower dark blue line). This represents 48.4% of full carry reported by the ICE Canada Exchange, a neutral view of fundamentals as determined by the actions of commercial traders. This is well below the 64% to 67% that has been calculated over the period of September. DTN views spreads falling below 33% of full carry being a shift to a bullish view of fundamentals.

Traders continue to watch harvest delays in the western Prairies, with Environment Canada issuing a snowfall alert to the west of Edmonton, which signals an unfavorable start to the week. DTN's 5-Day Highs Compared to Normal points to temperatures in the western prairies being zero to 6 degrees Celsius below average.

Despite this, noncommercial traders or investors are showing growing nervousness ahead of Thursday's USDA report. Today's trade volume shown for the November contract reached its highest level in five days, limiting the potential for an upside move.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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