December 20 – What to Make of A Canola Rival’s 16-Month Low

European rapeseed futures hit a 16-month low this week. What’s it mean for canola prices?

At first glance, it’s not positive.

European rapeseed futures hit a 16-month low this week (and their lowest since July 2016). What’s it mean for canola prices?

At first glance, it’s not really positive.

We’ve seen Paris-traded European rapeseed prices trend lower over the past 6 weeks, when it hit its last high on November 8th.

In fact, it’s lost 10% over that timeframe.

Comparably, in the past 6 weeks, the Winnipeg ICE canola prices have fallen about.

The larger Canadian canola crop doesn’t really help the market,but some of the technicals suggest that hedge funds and other speculative traders are behind the selling pressure in Europe.

What we also know is that Malaysian palm oil prices hit its lowest since August 2016 this week. This is because of the aforementioned increase in production and stocks there. Record palm oil production nearby in Indonesia likely also has something to do with it.

While that’s certainly bearish from the substitution effects perspective, we remind you that the canola stocks-to-use is at its lowest in 7 years.

Further, because the majority of the European rapeseed crop has to compete with other vegetable oils on the biodiesel market, it does help canola a bit.

Also, we mentioned that the USDA increased their forecast for Chinese canola imports to 4.7 million tonnes.  That’s a healthy jump from the previous forecast of 4.3 million tonnes (which was also what they imported last year).

That is, perhaps, why we’re not seeing the same sort of weakness in Canadian canola prices. But it also doesn’t mean that they’re going to the moon.

 

Rapeseed Reaches a 16-Month Low on the Continuous Chart

Wednesday’s trade saw weakness in many global oilseed and vegetable oil markets, including soybeans, soybean oil, palm oil and rapeseed. Canola bucked Wednesday’s trend with a narrowly mixed close in 2017/18 crop year contracts.

Perhaps one of the weakest moves was seen in the Matif rapeseed trade. Rapeseed futures fell close to 17-month low this session with a EUR4.50 plunge that saw price push below the 2017 low on the continuous chart and to the lowest level seen since July 2016.

Since reaching the recent Nov. 8 high on the continuous chart of EUR388, the rapeseed price has fallen 9.8% to Wednesday’s low of EUR350. To compare with canola, the continuous active canola chart shows a 6% move lower from the November high to this week’s Tuesday low.

Only time will tell if the move in rapeseed is nearing an end. Potential retracement support lies nearby at EUR349.59/mt and then again at EUR342.90/mt, which represent the 61.8% and 67% retracement of the move from the July 2014 low to January 2017 high.

The lower study of the attached graphic shows the February/May spread at minus EUR4.25/mt, which has remained unchanged on Wednesday and over the first three days this week. This would suggest that speculative traders, or noncommercial traders, are behind the current selling pressure. The middle study shows stochastic momentum indicators are in oversold territory, although these indicators on the weekly chart are trending lower and nearing oversold territory, pointing to the possibility of further downside ahead.

In other global markets, last week’s low on the continuous active Malaysian palm oil chart reached the lowest level since August 2016. Commentary points to rising production and weakening demand boosting stocks in Malaysia to the highest level in almost two years. March soybean oil futures posted a bearish outside day trading bar on Wednesday while is nearing a test of the contract’s December low.

H/T: DTN Progressive Farmer
About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.