ICE weekly outlook: Oversold canola still fundamentally bearish

ICE May 2019 canola with 20- and 50-day moving averages. (Barchart)

ICE canola futures are starting to look oversold after falling contract lows during the week ended Wednesday.

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.

Signs that exports were perking up could also be supportive, he said, “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 Wednesday at $470.90 per tonne, while the more active May settled at $479.30.

From a chart-perspective, the $470-$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,” he said.

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

“Fundamentally, it’s tough to get bullish on canola,” he said, pointing 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 the carryout could end up as large as three million tonnes.

— Phil Franz-Warkentin writes for MarketsFarm, a Glacier FarmMedia division specializing in grain and commodity market analysis and reporting.


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