Oilseed markets see some relief
Oilseed markets saw some bounce lately, inspired by the Chicago soybean complex. Grain markets started the week higher, boosted on relief of a United States-China cease-fire over tariffs.
An agreement to engage in new negotiations with the goal of reaching a compromise on a number of trade irritants within 90 days suggests a de-escalation of trade tensions.
While Chicago soybean futures sparked upward the past two weeks, it remains a market trending generally sideways with still net bearish fundamentals. But I have to admit being somewhat encouraged technically, with the nearby January bean contract rallying above its 20-day, 50-day and 100-day moving average resistance zone and triggering fund short covering. And a move to start the week above the October high of US$9.06 per bushel just might offer a new buy signal technically.
Why the gains?
Since bottoming out the last week of November, ICE canola futures also trended higher, gaining $10 a tonne as of Dec. 4.
Some of this gain can be attributed to a bit of relief that U.S.-China trade tensions have softened for now. But recent canola gains could just as easily be explained by a market that steadily eroded $30 lower since peaking in early October - become oversold - and was due for at least a bounce.
Rather than try to explain it fundamentally, let’s just focus on the price action.
January canola futures pushed above chart resistance at its 20-day moving average ($478). Primary resistance is now up at $490 where the 50-day average resides.
Gains in Chicago soyoil and soybean contracts provide spillover support. But a rising Canadian dollar weighs on crush margins and slow upside price momentum in canola. Large commercial stocks also limit canola gains.
We are watching short-term to see if speculative fund traders find reason to trigger covering action of their very large net short position in canola futures.
It's worth noting that the Moving Average Convergence/Divergence chart indicator started a positive crossover upwards, while the Stochastics indicator shifted up from what were previously technically oversold conditions.
In addition, we started noticing a few Prairie canola cash basis specials for December/January delivery. Unfortunately, basis specials are not yet universal.
For most growers, canola cash bids aren't attractive enough to undertake new sales. But one could consider moving a little more cash canola under the right circumstances. For example, if we could amass some combination of a local cash basis special, $10 to 15 per tonne futures bounce and capture some carry on deferred delivery positions to get us closer to $11 per bushel (Alberta/Manitoba) and upper $10 (Saskatchewan).
While cash canola bids are not high enough for most growers, some combination of cash basis special, modest futures bounce and some carry-on deferred delivery could get prices to the target zone.
Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.