Oversold market still fundamentally bearish

Winnipeg – ICE canola futures are starting to look oversold after falling contract lows during the week ended Feb. 20. While a short-term technical correction is possible, the underlying fundamentals remain bearish.

“Canola might be a little bit short-term oversold,” said Ken Ball of PI Financial in Winnipeg.

He said signs that exports were perking up could also be supportive, “but it doesn’t look like we’re heading for a year of significantly increased usage.”

Ball expected ending stocks would stay large in the 2.5 million tonne range, leaving canola without much to get excited about.

“I don’t suspect we have a situation where there’s a whole lot of upside in canola,” he said.

The nearby March contract settled at C$470.90 per tonne on Feb. 20, while the more active May settled at C$479.30 per tonne.

From a chart-perspective, the C$470 to C$480 per tonne level is a major support area on the weekly charts going back three years, said Mike Jubinville of ProFarmer Canada and MarketsFarm.

“The market may be entering oversold conditions and due for a bounce, but the fundamentals are bearish,” said Jubinville.

While he expected support could hold, there was little reason to go up.

“Fundamentally, it’s tough to get bullish on canola,” said Jubinville as he pointed to large U.S. soybean stocks and South American harvest pressure.

Uncertainties over Chinese demand for Canadian canola are also overhanging the market, and Jubinville cautioned that the carryout could end up as large as three million tonnes.

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