Canola futures diverged from soybeans this week, with noncommercial selling, along with light commercial selling, behind the move given concerns of canola being overpriced relative to soybeans, Statistics Canada upping their production forecast by close to 2 million metric tons while the Canadian dollar rose for a second straight week.
The November soybean contract gained 16 3/4 cents over the week, clawing back losses from the previous week while flashing a bullish technical signal on the weekly chart by trading both lower and higher than the previous week's trading range, while closing higher. Over the week, commercial traders showed a slight bearish tendency given their actions in the market, with the Nov/Jan spread weakening 1/4 cent to minus 14 cents.
The November canola contract, on the other hand, ended $1.20 per metric ton lower over the course of the week, the third consecutive lower weekly close, while bouncing from its lowest level traded since late September after reaching a low of $483.50/mt, only to recover and close at $489.70/mt.
The 75% retracement of the move from the contract's August 2017 low of $470.70/mt to the May 28 high of $528/mt is seen at $485/mt, which not only acted as support in this week's trade but appears as support on the November chart over three consecutive weeks in July. The continuous active chart shows this as a popular level of chart support as far back as March 2017. A breach of this level could lead to a test at $472.10 on the continuous weekly chart.
There were conflicting government reports this week for canola, with AAFC reducing the forecast 2018/19 stocks by 1 mmt on one day, based on supply and demand updates using the July production estimates, while the next day the September estimates increased forecast production by 1.8 mmt. Commercial traders showed signs of selling on Friday, while the green line on the second study points to the Nov/Jan spread weakening by a modest $0.10/mt to minus $6.80/mt, with commercial trader sentiment viewed as neutral overall over the week's trade.
Canola remains expensive relative to soybeans, with the continuous active spread chart showing a spread of $88.23/mt (canola higher than soybeans, CAD/mt), while this week's activity could be partially linked to an unwinding of short soybean/long canola spreads.
Support in the canola market may continue given the current weather pattern, with Saskatchewan reporting 44% of the canola crop harvested as of this week while Alberta has estimated just 13.6% of the crop harvested as of Sept. 18. The final days of summer have not been friendly to the western prairies.
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