Technicals Point To Higher Canola

WRITTEN MAY 23, 2009

U. S. ag commodity futures are trending higher through the spring so far. It’s interesting to note the huge flow of speculative money coming back into the ag sector in recent weeks.

Soybean futures are supported once again by the tightening stocks situation for U. S. soybeans. Sources close to Informa Economics say the firm now estimates old crop U. S. soybean carryover at an extremely tight 77 million bushels. USDA currently pegs carryover at 130 million bushels.

Bean futures continue to climb to new highs for the current uptrend as the market searches for price levels that will curb old crop demand. But we see no evidence yet of any wholesale switching by China of old crop soybean purchases to new crop, although China has been booking new crop U. S. soybeans.

A positive tone to stock markets, higher crude oil (which is now moving through resistance at US$60 a barrel) and a weaker U. S. dollar were positives not only for the CBOT soy complex today, but the ag sector generally.

July beans posted a new-for-the-move high at the time of writing to extend the current uptrend. A close above the pivotal US$11.50 per bushel level suggests a positive signal for market bulls. Trend remains decidedly up. PFCanada has pegged a potential rally target for July beans at $12.20 per bushel.

CANOLA CHALLENGES $500 LEVEL

Winnipeg canola futures have managed steady gains in response to bullish CBOT soy complex leadership. Canola is also supported by friendly technicals that suggest a potential challenge of the $500 per tonne level in the July contract may be in the making. We haven’t seen futures hit that level since last summer.

There’s plenty of fundamental gushing over strong exports and domestic crusher demand, both still on pace for new records this year. China remains a powerful and regular buyer despite periodic talk they will soon slow purchases or otherwise refocus attention on new crop.

Capping the advance was the strong tone in the Canadian dollar, with the July contract encountering some increased farmer pricing pressure. Cash bids have hit the $10.75-per-bushel level in parts in Western Canada, triggering farmer pricing. Weather forecasters are also calling for improved planting weather in Western Canada, which limits immediate upside potential.

Regarding new crop canola, news of snow in the prime canola growing area of central and northern Alberta in mid-May along with crude oil testing the $60 level served as supportive factors. Cooler than normal conditions seem to persist right across the Prairies this spring, and seeding operations are slowed by conflicting dryness out west and too wet in the east. You’ll find sporadic “OK” conditions peppered into various areas in between. But no where do seeding conditions seem optimal so far this year, with crop insurance deadlines now on the horizon and steadily getting closer.

Nonetheless, the canola price trend remains up. New crop futures are currently flirting with their own high-end overhead resistance at this time in the $470 to $480 per tonne area. This resistance goes back to October 2008.

PFCanada has held off the urge to make new crop sales. Normally I would be very tempted to do something when presented with a chart displaying a longer term, multi-month sideways trend and futures currently testing the upper end of that range. But at this time I still believe the upside to the current market needs to play itself out, especially given the soybean dynamics at work and strong demand continuing for oilseed markets generally.

I am still wary of market seasonals. May typically is a seasonally positive month for the canola market. But by the time the second half of June rolls around — with the crop fully seeded and up, presumably looking in decent shape — that could be the time when the canola market “might” roll over heading into the summer. Or not. We’ll see. Nonetheless, any time between now and second half June, I will be tempted to do something. But for now, we’ll watch the charts and fundamental developments for any signs of topping action.

Mike Jubinville runs Pro Farmer Canada from Winnipeg and can be reached by e-mail at [email protected],or through his web site at www.pfcanada.com.

Pro Farmer Canada is for informational purposes only. The publisher and its agent or employees shall not be liable for any loss or damage suffered by any person as a result of reliance on any of the contents contained within these products; whether such loss or damage arises from negligence or mispresentation or any act or omission of the publisher or its agents or employees.

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