Canada Markets

Canola's Seasonal Index Flashes a Potential Warning

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
Connect with Cliff:
This chart shows the weekly trend in the nearby canola future (red line) when compared to the five-year seasonal index (blue line). While just one of several indicators DTN watches, the seasonal index chart signals a high has been reached on average in last week's trade over the past five years. (DTN Market Strategies)

The blue line on the attached graphic shows that on average, the weekly front-month canola chart has tended to reach a seasonal high as of last week's trade over the past five years. Price tends to move sideways overall over the next six weeks prior to moving into a downward slide to the oilseed's seasonal low realized in September.

Prices typically reach a high during spring seeding or early summer as stocks tighten. Indeed, commercial stocks were reported to fall by 18.1% to 1.084 million metric tons in week 41, or the week ending May 13, although this volume remains 26.8% higher than the same week in 2016/17 and also well-above the five-year average. This is reported at a time when disappearance from combined crush and exports also trails the year-ago pace.

After reopening this week following Canada's three-day holiday weekend, old-crop July canola seems reluctant to mirror the move made in soybeans. While July soybeans have moved 32 cents higher in Monday/Tuesday trade, July canola moved just $.30/metric ton higher on Tuesday. Recent highs ranging from $536.30/mt to $539.50/mt continue to act as resistance for this market. The continuous active canola/soybean spread (measured in Canadian dollars/mt) has weakened $12.52/mt this week to $47.63/mt, reaching its weakest spread seen since May 9 (canola trading over soybeans). This suggests that canola may be viewed as expensive relative to soybean prices.

What bears watching is the affect that weather has on old-crop marketing. Should a hot, dry pattern continue on the Prairies, producers could hold old-crop with deliveries falling below average following spring seeding. This bears watching. A move from the $20 range that has governed trade for the past nine weeks, signaled by a breach of the April 9 high of $539.50/mt could change everything.

It is important to note that the seasonal index is just one of six factors that DTN follows in its strategy formulations.

**

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES/)

Comments

To comment, please Log In or Join our Community .