BRANDON — Strong demand is helping give canola a good shot at beginning a new rally soon.
The demand is already tugging basis levels to farmer-positive positions scarcely seen until the recent bull market, and is expected to continue.
“The world wants your canola,” said David Drozd, senior market analyst with Ag-Chieve Corp. in Winnipeg, during Manitoba Ag Days.
“Whatever you plant, the world is able to use.”
Drozd said he expects a new rally for canola to begin soon, after canola-owning speculative and investment money washes out of the market.
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“Once the long liquidation is over, I believe that canola is going to turn up,” he said.
Drozd is a technical analyst, which means he does not base his price projections on fundamental supply and demand factors. Technical analysts believe supply and demand information is factored into the market before official statistics reports are released, making statistics-based analysis pointless.
Instead, technical analysts try to spot pricing patterns that reveal the market’s underlying structure.
Drozd thinks old crop canola should be able to rally soon, unless it drops below $570 per tonne on the March Winnipeg canola contract. If $570 is breached, it could fall substantially further.
If it remains above $570, then he looks for it to rally toward a series of zones above $610.
The November 2013 contract needs to top $550 for a rally in new crop canola.
However, if its price fell below the support level of $520, a substantial drop is in the cards.
Drozd is also bullish on wheat and somewhat bullish on corn.
“We could be carving out a bottom,” Drozd said, noting the prices of most crops have fallen far from their late summer peaks but appear to be stabilizing.
Drozd doesn’t use fundamental analysis to make his projections, but he uses them to explain why things are where they are today. Extremely strong demand is the underlying cause of most crops’ strength, and that’s certainly true of canola.
The plus-$30 per tonne basis on July futures is evidence of that, he added.
