Canada Markets

March Canola Breaks Resistance

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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After days of trying, March canola closed above $500/metric ton, the first time in over eight weeks. Monday's move above retracement resistance at $501.80/mt could clear the way for a further move to an area of resistance at $507/mt. The third study points to the March/May spread ending close to unchanged at minus $5.70/mt, which points to speculative fund buying behind today's move. (DTN graphic by Cliff Jamieson)

After failing to sustain a move above $500/metric ton in Wednesday, Thursday and Friday's session, canola broke out above resistance on Monday following a similar move through the $10 level by soybeans.

Resistance breached on Monday includes the contract's 50-day moving average (blue line) at $499.30/mt, the 33% retracement of the move from the November high to the December low at $499.50/mt, psychological resistance at $500/mt, as well as the 38.2% retracement of the November/January downtrend at $501.80/mt.

This move clears the path for a potential continued move to the next level of resistance in the $507/mt area. This includes the 50% retracement of the discussed downtrend at $507/mt, the contract's 100-day moving average at $507.30/mt as well as the contract's 200-day moving average at $507.50/mt.

As is seen on the March soybean chart, today's move was driven by speculative trade and despite concerns of unfavorable weather in Argentina, the nearby March/May spreads ended close to unchanged from Friday. Commercial traders have taken a cautious approach in today's trade, while reports of a cancelled U.S. soybean sale to China did not help. The lower study shows today's move taking place given the weakest volume seen in six sessions.

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Another sign of an indifferent approach from the commercial side is seen in cash basis levels, with Monday's average prairie basis weakening slightly to $19.73/mt under the March. While basis weakened modestly on the front-end, modest strength was seen for delivery in May.

Should canola continue to rally, it will have to ignore the trend seen in the soybean oil market. Monday's March soybean oil contract closed lower for the fourth straight session while reaching the lowest level seen since last June, showing signs of bearish commercial selling.

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DTN 360 Poll

This week's DTN 360 Poll asks if you agree with the significant increase in farm stocks of canola as reported in Monday's Statistics Canada report. You can weigh in on this poll found at the lower right side of your DTN Canada Home Page.

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

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