Canola

[errolanderson]

bucket . . . Those comments were made
ahead of the bullish soybean USDA
report. $600/MT canola was a heavy
resistance zone prior to USDA. Markets
change if they get a fresh dose of
bullish news that triggers massive fund
buying. That's what occurred on that
Friday driving canola above $600 and
beyond.

But IMO, doesn't change the fact that
canola remains in a technically
overbought zone. Monday morning will be
another interesting test. If the funds
hold true to their current positions,
the bull flag that Kodiak has
highlighted may show some punch.

My point right now is the higher this
market flares, the bigger the potential
sell-off when it occurs. Should stock
markets tumble Monday morning, canola
may struggle to hold its recent gains.
Equity markets may sway the entire
commodity complex.

bucket . . . I wish you all the best in
your cash sales. No one knows where the
top of this rally is, but it will
exhaust and then sell-off. From a farm
pricing point of view, it is generally
better to sell cash grain into a rising
market than to wait for the sell-off.
Why? Because the ride down is a lot
quicker than the ride up.

Errol

[furrowtickler]

Errol I hope you are wrong but history shows you may well be right.

[Kodiak]

Errol, you are right. Most bull markets are a stair climb up and an elevator ride down. So the question is "on which floor do the bulls step into the elevator?" I might quibble with your "overbought" sentiment. Aside from the absolute number($6oo )I don't see it in the technicals.

Canola fundamentals have been on our side, helping drive the market higher. They get a bit of help periodically from beans and outside markets. Money flow, and currency markets seem to loom larger and larger. We'll soon see if the bull flag plays out. After the US jobs report on Friday, I'm thinking suddenly talk of QE3 will be back on Monday. Will this be enough to confirm the bull flag?

I'm holding off further sales for now. Why? Tight fundamentals. Positive crush margins. An inverted market. Firm basis levels showing no signs of immediate weakening. "Talk" of monetary easing. The need for risk premium during the growing season until the crop is "made". The RSI at 66 isn't screaming at us, the Bolinger bands aren't violated, and the Stochastics have embedded themselves above 80.
What makes me most nervous? The commitment of traders showing funds heavily long. However, that can be overcome if the commercials step in and increase their ownership.... http://snalaska.net/cot/current/charts/S.png

[bucket]

Here is what I ask myself about canola.

How much production do we need for demand? The canola council has set a target of 15 MMT by 2015.

Our current production has been said to be short of demand creating a run up in prices that started before the 2011 harvest. The pipeline was close to being empty. This year won't be any different.

If the acres come in at 21 million and normal weather returns, there is a good chance that on a bpa yields won't be as good.

A 5 bpa drop over the entire crop puts us at about the same production as last year. This means no rebuild in stocks and leaves the pipeline close to empty or at the very least some price rationing to take effect.

The soil maps indicate at this time there is a better chance of lower yields this year and that leaves me bullish on canola even with large seeded acres.

Then factor in that wheat and durum will be worth 8 bucks off the combine. That may factor in how to grab any canola from producers that are covering costs using cereal grains.

Charts may say one thing, but dry soil and heat may say something 180 degrees to that. Its just that charts lag the dry soil and heat.

[charliep]

I would watch the demand/consumption
side as soybean prices increase. China
represents about 55 MMT out of 89 MMT
world soybean trade. If they pull back,
soybean prices will start to slide.
They have also been known to wash sales
when delivered prices are higher than
the market.

With South American soybean harvest in
full swing, the world is not short
soybeans. New crop maybe different.
Canola is tight old crop. New crop will
be a matter of discussion.

[bucket]

China is buying corn right now because the domestic price is too high. They are short. If they didn't grow much corn there is a better than likely chance they grew even less soybeans.

Prices drop, demand grows and it only creates further lower prices if production ramps up. At this time, not looking so good for above trendline yields.

[charliep]

For what it is worth, Informa Economics
puts South American soybean production
at 116 MMT, down about 20 MMT from the
starting forecasts last fall. Both
Brazil and Argentina active sellers to
pocket current $14/but prices and the
inverse.

[bucket]

And those prices may not be high enough to ration if production falls short somewhere else.

Other questions:

1. What is the current European ****seed crop conditions?

2. How is the forecast for western canada for the next three months?

[Kodiak]

Last reported price of soybeans in China that I read was $19-20/ bushel. Perhaps this is bad information????


However, if it is correct, would they wash purchases from USA or SA which were done at $15ish FOB? This wouldn't make sense.

What am I missing?

[charliep]

You are encouraged likely right term. A
buyer that represents 60 percent can do
what they want however. If China gets
into economic trouble, will soybeans,
canola and vegetable oils be a necessity
or luxury?