Price drops $50 | Dec. 16 rally sparks hope, but one analyst warns of $370 per tonne futures
Traders and analysts are closely watching this week’s canola market to see if the sickening price slide has ended.
Trade Dec. 16 caused one analyst to hope the market was heading upward.
“There was a pretty decisive reversal today,” said Brian Voth of Agri-Trend Marketing.
“I would guess that this bloodbath is done or close to done here.”
Errol Anderson of Pro Market said canola prices seem set for a recovery, at least in the short term.
“Definitely we’re oversold,” said Anderson.
“But is it the bottom? No.”
The plunge in canola futures and the widening of basis levels has worried many farmers.
Many brokers and traders are using the word “panic” to describe how some clients feel as they try to price canola in a falling market.
The January contract had fallen $50 per tonne Dec. 1-13, or more than $1 per bushel. The selling was relentless during the plunge, which was exacerbated when Statistics Canada estimated the crop at almost 18 million tonnes.
However, Dec. 16 saw an aggressive rebound, with January canola at one point up $6 per tonne from the close Dec. 13, although it closed at $444, a $4.10 per tonne gain.
It was the shape of the rise rather than the rise itself that struck Voth as important. On a candlestick chart, one showing a rapid rise and fall, it formed a bullish reversal pattern that suggested prices would rise. Stochastics, another technical market measure, were also bullish Dec. 16.
Voth thinks a solid move upward, like that suggested by the technical signs, could inspire a short-covering rally as bearish speculators find themselves on the wrong side of the market after recent gains. He also thinks canola has good fundamental reasons to rally out of this trough, with its discount to soybeans likely to promote more canola exports.
If demand for U.S. soybeans stays strong, the reversal Dec. 16 could establish the low of the market for the winter, giving farmers better prices until spring.
After that point, however, Voth thinks the worldwide weakness in vegetable oil will drag down both soybeans and canola.
Anderson is less confident about the rally Dec. 16 signifying more than a short-term mitigation of oversold conditions.
“There’s a case for $370” per tonne canola futures on long-term charts, he said. That price level has held a number of times in the last decade. Canola recently broke through some previous support and trend lines, so there’s not much holding it back from dropping to $370.
Anderson thinks the U.S. stock market and commodity rally supported by continual rounds of U.S. Federal Reserve stimulus might finally end, pushing commodities down across the board as confidence whistles out of the market.
“If the stock market breaks, all bets are off,” said Anderson.
Many analysts have been profoundly bearish about canola prices since the vast size of the prairie crop became obvious after harvest.
Anderson said the price decline has been hard for farmers, but those who bought put options to protect themselves have been gratified to see their premiums provide a safety net.
“They’ve been absolute gold mines,” said Anderson.“They’ve been an absolute godsend for some guys.”