Canada Markets

Did November Canola Flash a Warning Sign?

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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This week's trade in November canola resulted in the first weekly loss in five weeks after reaching a fresh contract high, while the weekly trading bar points to a bearish outside-week, signaling a possible change in trend. The stochastic momentum indicators in the first study support this change in direction, after a bearish crossover in overbought territory. The weekly Nov/Jan spread (second study) strengthened $.30/metric ton this week, signaling a bullish response on the part of commercial traders. (DTN graphic by ProphetX)

New-crop November canola this week may have signaled an end to the uptrend that has been in place since August 2017, following weakness seen across global oilseed and vegetable oil markets. The November contract ended $10.30/metric ton lower over the course of the week, ending lower in each of the past four sessions for the first weekly loss seen in five weeks.

This 2% drop over the week is comparable to weekly losses seen in November soybeans (.7%), December soybean oil (1.6%) and November rapeseed (1.7%). Of particular interest on the November chart is the appearance of an outside-week trading bar this week, trading both higher and lower than last week's trading range, which can act as a sign of change in trend. This move is also supported by a bearish crossover of stochastic momentum indicators as seen on the second study.

In fundamental news, the USDA increased their estimate of 2017/18 ending stocks to 6.186 million metric tons, up 14.2% from 2016/17. As well, the International Grains Council tweeted today their forecasts for 2018 planted acres of canola/rapeseed, with global acres expected to grow by 1.5% to a record 91.7 million acres. The agency sees a 4% hike in Canada's harvested acres to 23.7 million acres, close to AAFC's early estimate of 24 million acres. While a small percentage in terms of global acres, of interest in IGC estimates is a year-over-year increase of 20% for Russia's harvested acres to 3 million acres and a 31% increase in Ukraine's harvested acres to 2.5 million acres.

If there is one thing that sets both old-crop and new-crop canola apart from the soybean market, it may be the futures spreads. As noted by the green line on the second study of the attached chart, the new-crop November/January spread narrowed this week to minus $4/mt. This points to a less-bearish cautious approach to trade by commercial traders, despite estimates that point to the potential for growing year-end stocks and expectations of record acres to be seeded this spring. Continued dryness over much of the Prairies may continue to trump all other signals.

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DTN 360 Poll

This week's poll points to the International Energy Agency forecasting that Canada's oil-by-rail movement will double from historical highs over the next two years, while asking if the agriculture industry should be concerned. You can weigh in with your thoughts on this poll, which is found at the lower right of the DTN Canada Home Page.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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