Login hub
Support
Help centre
CANOLA HEDGE THOUGHTS
Two major uncertainties lie ahead for all grain markets in the coming month. The first is the March 31st USDA planting intentions report which could be a major market influence through the early spring. The second large influence will be the direction of the world economies based on the outcomes of the Middle East uprisings. Certainly, no one can predict these events and therefore producers need to get their hedging plan updated and in place to protect results in the event of an adverse outcome in the market. Again most producers are securing 10-50% coverage for 2011 canola with many using options to achieve higher coverage without the fixed commitment.
Certainty, no one predicted that world economic issues would see a Japanese Nuclear Crisis which has compounded the outside influences in all commodity markets.
Speculative liquidation pressure in all markets has added to the market slide. As we stated in our letter three weeks ago, “Prices take the stairs as they move higher, but take the elevator when they go down!”
CANOLA FUNDAMENTALS
Canola contracts on ICE have been on the defensive, with declines a function of aggressive speculative liquidation. Much of that selling was linked to the economic uncertainty stimulated by the massive earthquake in Japan early Friday.
Some of the selling in canola was also influenced by concerns that demand for Canadian canola from Japan would at least be temporarily disrupted, with ports and crushing facilities around Japan shut down in the aftermath of the earthquake. Japan purchases 1.8 million to 1.9 million metric tons of Canadian canola on an annual basis.
Tuesday’s trade saw the greatest decline as canola posted limit-down declines in many months while the market fell in sympathy with most other agricultural commodities, and participants continued to react to world economic concerns.
Although overshadowed by the Japanese crisis, rains in major growing regions of Argentina, and a growing expectation of larger soybean yields in Brazil, helped to pressure canola prices.
CANOLA TECHNICALS
The brief price recovery in the canola market two weeks ago was met with another round of heavy selling last week which has extended into this week’s trade. Since peaking at a 619.5 high in mid-Feb, the market has been in a steep sell off.
The market is approaching a key area of support. This support is the blue line 40 week moving average currently at the 517.8 level. If this support is reached and holds, the longer term market trend will remain bullish.
But if the 40 week moving average is broken as support, the green line 200 week moving average currently at 471.2 will become the next downside price objective.
Key upside resistance to watch is the red line 10 week moving average currently at 583.4. A price rally and close back over this average should confirm a low has been set. A close back over this average will turn the 619.5 February high into the next upside resistance with longer term resistance at 659.0 which is the 78% Fibonacci retracement of the 2008 downtrend.
MGEX HRSW HEDGE THOUGHTS
Two major uncertainties lie ahead for all grain markets in the coming month. The first is the March 31st USDA planting intentions report which could be a major market influence through the early spring. The second large influence will be the direction of the world economies based on the outcomes of the Middle East uprisings. Certainly, no one can predict these events and therefore producers need to get their hedging plan updated and in place to protect results in the event of an adverse outcome in the market.
Hedging 10-30% of your expected 2011 crop is warranted.
After the break, options again provide the best opportunity to set a floor, but benefit in the case of a price recovery later this spring. Call RMI for details.
MGEX HRSW FUNDAMENTALS
The market ended last week on a negative tone in response to the broad based selloff in commodities due to the weaker technical picture and the overnight earthquake in Japan.
Thick snow cover, an upcoming warm spell, and saturated subsoil are expected to lead to above normal flooding for Saskatchewan. The province is dealing with snow cover that has broken 10 and 20 year records. This is not unlike the amount of snow that the Red River Valley and the rest of the upper Midwest are experiencing at the moment.
The only good news for grain at the beginning of the week was that Japan has issued a regular weekly wheat tender for 32,381 tonnes of Canadian wheat. This was smaller than most instances but still regarded as “normal” size despite the earthquake. At least five major Japanese ports were reported as severely damaged or on fire.
Tuesday’s selloff in all commodity markets pushed wheat prices sharply lower as investors exited the market in order to preserve capital. “Flight from risk” is a popular phrase in the media today as market remains uncertain about the situation in Japan.
MGEX HRSW TECHNICALS
Selling in the wheat market continued last week and has spilled over into this week’s trade. Since peaking at a 10.38 1/2 in mid-February, the market has been well sold and is currently trading at 8.07.
The market is approaching what should be a very strong support area. This support is the blue line 40 week moving average at 7.75 and the green line 200 week moving average just below at 7.65. There is a very good chance that the market will stabilize at or above this support area.
Once support is found, the market should begin an upside rally in retracement of the latest downtrend. Key resistance to watch is the red line 10 week moving average currently at 9.28. If the market can close back over this moving average, the longer term trend will remain bullish. Following resistance is the 10.38 1/2 February high with longer term resistance at the top of the open gap area at 10.80.
If 7.65-7.75 support is broken, it would likely indicate a long term top has been set with 6.93-7.00 then becoming the next primary support.
Look at Minneapolis wheat options or fixed pricing with the wheat board.
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.