ICE Futures Canada canola futures continue to maintain an upward trending bias, but held about steady for the week ended July 30. During the week, canola contracts retraced back from recent contract highs, only to charge higher again and test overhead resistance as the week came to an end.
Interesting to watch canola market activity over the past two months. June started at the lows and rallied for the first three weeks before stalling to close out the month. That posted a bullish “flag formation” on the price charts. The month of July started with a roar higher again to new highs – and now futures once again appear to be stalling with the close of July.
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Nonetheless, the trend higher in canola
futures remains intact, with contracts trading well above their key moving averages, including the 21-day, which is at $442 per tonne on the November contract. Could current market activity simply be a pause, with a second bull flag on the chart similar to what was posted at the end of June?
Key resistance at $460 per tonne has currently stalled upward progress in the November canola contract at the time of writing (July 30), but the weekly chart shows a high at $480 per tonne as still being a possibility.
PRODUCTION PROSPECTS
Discussions regarding Canadian Prairie crop problems have been long and exhaustive over the past number of weeks and have driven the canola market to recent highs. Crop problems in European Union and former Soviet Union nations have given the market added upside momentum in July. But it may appear that at least for now, traders have priced weather problems for Western Canada into the market.
There’s heightened debate in the country on 2010 Canadian canola production prospects. Trader sentiment this week suggests that crop size is no longer trending smaller, that it has at least stabilized, and that it may in fact turn higher from initial dire lows, provided we see a good finish to the growing season. But admittedly, there remains plenty of growing season ahead – and end-of-growing-season frost fears for a late-developing crop have not even entered the discussion.
It’s doubtful, especially as it appears for now, that the canola market has a lot of downside risk. But a move in the November back down to chart support (old resistance) at the $430-per-tonne region would probably serve as a very healthy development for the longer-term price outlook. It would allow demand to keep rolling forward and not be rationed out prematurely – thereby tightening supply further down the road to provide fresh fundamental incentive to rally the market later in the year.
Western barley futures moved modestly higher this past week ended July 30. Cash bids have strengthened: 48-lb. delivered bids for August movement now range from $3.50 to $3.55 per bushel in southern Alberta. Farm pickup bids in central to northern Saskatchewan are heard around $2.70 per bushel, and $2.70-$2.90 per bushel in southern Manitoba. Should wheat prices propel sharply higher into late summer, barley bids may climb further.
U. S. wheat markets rallied sharply this week in a move that is now going parabolic and providing bullish leadership for the entire U. S. grain/ oilseed floor. Reduced wheat production prospects in Russia, Europe and Canada have traders looking for the U. S. to garner more export business in the months ahead. Wheat futures in the past week have extended gains through several layers of chart resistance this week.
CORN AND SOY
Chicago soybean futures posted strong gains for the week ended July 30 and an upside breakout on the daily charts. For the week, September beans finished 22 cents higher after starting the week under pressure. With wheat a driving force in the bean market, a key will be if wheat continues its strong bull run. Also supporting beans, however, are strong demand from China and concerns that a La Nińa could bring dry conditions in August, a critical month for pod fill. Private forecasters are in disagreement about next week’s weather forecast. While they all agree warmer temperatures are on the way, they disagree on the chances of precipitation.
Chicago corn futures also finished sharply higher for the same week. Bulls have the strong upper hand heading into the first week of August. But corn is a follower, making it reliant on wheat and soybeans to provide the bulk of the spillover support. There’s still a lot of overhead resistance, while the weather outlook is favourable and U. S. corn condition ratings are strong, which could lead to profit-taking pressure. The U. S. Department of Agriculture’s Aug. 12 crop production report will give traders the first survey-based look at this year’s U. S. corn crop. Unless weather conditions turn hot and dry for an extended period, it’s likely traders will immediately be looking for a bigger crop estimate in September.
– Mike Jubinville is a grain market analyst with ProFarmer Canada in Winnipeg and
writes for Resource News International (RNI), a Winnipeg company specializing in grain and commodity market reporting.
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