CANOLA FUNDAMENTALS

Canola contracts on ICE Futures finished last week’s session with strong advances with much of the upward price momentum stimulated by the gains experienced in CBOT soybeans and soy oil. However, futures were trading at lower price levels early this week, with steady commodity fund liquidation orders associated with the declines.

 

The continued upswing in the value of the Canadian Dollar was helping to undermine canola futures as was the absence of fresh export demand.

 

The advancing harvest operations in the soybean growing regions of Brazil and Argentina also weighed on canola as did bearish chart signals.

 

Comments from a Canadian Wheat Board official said that as much as 5.0 million acres of farmland could go unseeded this spring due to excessive moisture.

 

CANOLA TECHNICALS

 

The near term trend for the canola market remains tilted toward the downside although last Friday’s 575.0 close came well above the 539.7 low set earlier in the week.

 

Last week’s close also came for a second week in a row under the red line 10 week moving average currently at 590.0. As long as the spot canola contract trades under this average, the trend will remain down.

 

The longer term trend for the market remains up with a move back higher expected to begin once a low forms. Last week’s bottom at 539.7 is the first area of support followed by the blue line 40 week moving average currently at 510.0.

 

Upside resistance above the 10 week moving average at 590.0 is the early 2011 high at 619.5. This is followed by longer term technical resistance at 659.0. This longer term resistance is the 78% retracement resistance of the 2008 downtrend and will become the next upside objective once 619.5 is broken.

 

CANOLA HEDGE FACTS

 

Canola remains in the 80th decile of prices over the last four years.

 

Stay the course. Securing 10%-50% of new crop volumes are the norm for hedges at this time. The purchase of a simple put option will allow a producer to be on the more aggressive side of that range with a limited or “fixed cost” risk.

 

The next major fundamental event will be the MARCH 31ST US planting intentions from the USDA. Securing some hedges by then is always a good idea.

 

 Canola Technical Graph

 

MGEX HRSW FUNDAMENTALS

 

Wheat markets ended last week sharply higher as the market reacted to good export sales report and strength in the corn and bean markets.

 

No change in the weather as US HRW remains dry, China is getting some rains, and wet a spring forecast for Russia should be monitored.

 

Chinese officials are breathing a sigh of relief after moderate rain/snow fell over the last couple of weeks, relieving persistently dry conditions in their main wheat belt. Widespread rain and snow in northern China over the weekend, expected to ease later Monday, have brought relief to drought-stricken wheat-producing areas in China, official media said Monday.

 

The seasonality graph depicts a strong tendency for MGEX wheat to top in the Feb-Mar timeframe.

 

MGEX HRSW TECHNICALS

 

The spot Minneapolis wheat contract has been well sold since topping out at a 10.38 1/2 high two weeks ago. In last week’s trade, the market broke under an important area of technical support.

 

This support is the 10 week moving average currently at the 9.35 level. This average now becomes upside resistance over the current 9.30 market price. If the market should rally back over this average, it may signal that a bottom was set at last week’s 8.73 1/2 low.

 

But if the current rally attempt should stall near term, another downside sell off should follow possibly back toward longer term support at the 8.28-8.33 area. These two prices were former weekly price highs from late 2010.

 

Once the market establishes a near term low, an upside rally back toward the mid-February 10.38 1/2 high is expected. The longer term trend for the market will remain up until the open gap area between 10.00-10.80 is completely closed. In order for the gap to be closed, the spot wheat contract will need to trade back up to 10.80.

 

 

MGEX HRSW HEDGE FACTS

 

December Minneapolis Wheat remains in the 80th decile of prices over the last four years.

 

The strong seasonally tendency for wheat to peak during Feb-March is a major driver in hedging a portion of new crop. Hedging 10%-30% of new crop production would seem to be the norm.

 

Look at Minneapolis wheat options or fixed pricing with the wheat board.

 

Wheat Seasonality

 

This information is provided as part of a Know-Risk Farm Management subscription, for information on Know-Risk visit http://www.dynagra.com/Know-Risk/ or to see an informational video about Know-Risk click here.

 

DISCLAIMER: This material should not be construed as an offer to sell or the solicitation of an offer to buy any financial instrument where such an offer or solicitation would be illegal. We are not soliciting any action based on this material. It is for the general information of our clients. It does not constitute a recommendation or take into account the particular investment objectives, financial conditions, or needs of individual clients. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. The price and value of the strategies in this material and the resulting income may go down as well as up, and clients may realize losses on any investments.

Past performance is not a guide to future performance. Future returns are not guaranteed, and a loss of original capital may occur. We do not provide tax, accounting, or legal advice to our clients, and all clients are advised to consult with their tax, accounting, or legal advisers regarding any potential investment. Certain transactions – including those involving futures, options, swaps, and other derivatives – give rise to substantial risk and are not available to nor suitable for all investors.

Although the information has been compiled by RMI from sources believed to be reliable, these financial forecasts/data/analysis are based upon a number of estimates and assumptions that are subject to significant business, economic, regulatory and competitive uncertainties. Forecasts are inherently subjective and speculative, and actual results and subsequent forecasts may vary significantly from these forecasts. RMI makes no representation, warranty or guarantee as to, and shall not be responsible for the accuracy or completeness of, this information and has no obligation to update any information provided to you. No assurance or guarantee is made that the forecasts will be achieved.

RMI shall not be liable to recipient or any third party for its use of or reliance on the information contained herein. Neither RMI, nor any affiliate, nor any of their respective officers, partners, or employees accepts any liability whatsoever for any direct or consequential loss arising from any use of this publication or its contents. Please be advised that the examples and prices provided are for illustrative purposes only and may not reflect the actual prices at the time a transaction is executed. RMI is actively involved in the energy brokerage and consulting business and may advise/execute transactions in accordance with or contrary to any strategies presented herein, at its discretion.