Canada Markets

November Canola Holds Above $485

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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November canola bounced back from Monday's losses this session, after holding the line at support of $485/metric ton and last week's low of $484.20/mt. The Nov/Jan spread would suggest speculative selling on Monday, while this group were buyers on Tuesday. (DTN ProphetX chart)

Tuesday's canola trade saw the November contract reaching a fresh low for the week, while landing within $1/metric ton from testing last week's low of $484.20/mt. While noncommercial selling seemed behind Monday's loss of $3.60/mt, this same group seems behind Tuesday's $3.20/mt gain.

Current lows are testing what could be a level of solid support. Potential support lies at last week's low of $484.20/mt. The $485/mt level also represents the 75% retracement of the move from the contract's August low to May high of $528/mt. As well, weekly lows (not shown) over four weeks ranging from $483.70/mt to $486.20/mt reached last September and October also act as levels of technical support. Given a potential breach of this level, two weekly lows reached last August/September of $477.90 and $478/mt might also be tested. The continuous active chart points to the $472.10/mt low reached last June as another level of potential support.

While concerns remain surrounding the 2018 crop potential and lack of precipitation across the southern and western Prairies, risk remains that canola remains overpriced relative to soybeans. The continuous active canola/soybean futures spread, measured in Canadian dollars/mt, is calculated at $68.07/mt on Tuesday, down from its recent high, but could be viewed as high relative to the average of $50.86/mt calculated since the beginning of the crop year.

While not shown, canola's forward curve, or series of points marking the close for consecutive futures months points to a steep, upward-sloping line, which reflects a bearish view of fundamentals as determined by the actions of commercial traders. One trade source today suggested that Canada's canola carryout could surprise by being well-above current government estimates, while seeded acres could be revised higher from Statistics Canada's latest estimates. Only time will tell.

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

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