Canada Markets

November Canola -- A Long-Term Perspective

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The November canola continuous monthly chart shows this week's trade bouncing from support at $500/metric ton, while holding above trendline support at $498.90/mt, drawn from the September 2014 low. Wednesday's close is holding above long-term retracement support at $508.10/mt. (DTN ProphetX chart)

In Tuesday's Closing Market Comment video, DTN Analyst Todd Hultman demonstrated how the November soybean continuous contract slipped to a low of $8.64 1/2/bushel in Tuesday's trade as traders reacted to China's retaliatory move to slap tariffs on U.S. soybean imports. This move saw the November contract come within 11 1/4 cents of the September 2015 low of $8.53 1/4/bu. This could be viewed as key support for the contract and may be key to preventing a further slide to the March 2009 low of $7.84/bu.

A similar canola chart shows the continuous new crop contract continuing to show resilience, with the $500/metric ton level acting as a floor in Tuesday's trade, representing the lowest level traded in only four months. As seen on the attached chart, the move also held above long-term trendline support at $498.90/metric ton, given an uptrend that started in September 2014.

Over the past five years, the November contract has closed an average of $3.96/mt lower over the month of June, ending lower in three of the five years. The November contract also finished an average of $26.22/mt lower over the month of July during the past five years, closing lower in four of five years as prices follow their seasonal trend towards a September low. In three of five years (2013 to 2017), a lower close in June was followed by a lower close in July.

Over 20 months, the continuous November contract has ranged over a $60.70/mt range, while is holding above the mid-point of this range, given Wednesday's close at $508.30/mt. This also represents a close above retracement support of $508.10/mt, which represents the 50% retracement of the move from the long-term 2005 low to 2008 high. A breach of this support could lead to a further slide to $445.80/mt, the 61.8% retracement of the same uptrend, levels last seen in July/August of 2016. Nearby long-term resistance lies at monthly highs of $532.50/mt, then again at $539.40/mt.

What may bear watching is the Nov/Jan spread, which has shown weakness this week and signals a bearish response to trade by commercial traders. This spread has weakened by $.30/mt to minus $6.90/mt (January over the November), while nearby support on the continuous November chart lies at minus $7/mt.

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

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