The Canadian canola market appeared to react just as much to emerging geo-political drama this week as to traditional supply/demand fundamentals.
Coming into the week, ICE canola futures maintained underlying chart support which steadily lifted prices off the lows posted during the final week of November.
A declining Canadian dollar has been supportive to the canola market, with the loonie to start the week plunging below the US75 cents, struggling at its weakest levels since June 2017.
While that weakness helped lift canola futures, the fact that Canada was drawn into the middle of United States-China political and economic issues is not where we want to be.
Loonie dropped, tensions rose
The loonie dropped as tensions continue to increase over the arrest of a Chinese business executive for possible extradition to the United States.
The story should be watched closely by canola growers. In fact, by the overall Canadian agricultural sector.
The Chinese government says Canada will face “serious consequences” if the executive is not released from a B.C. prison immediately.
Canadian business reaction
The warnings of serious consequences have spooked Canadian companies that deal with China. They’re worried for their employees who work in China, and know that rules could change at any moment which could shut down trade or make it prohibitively expensive to do business.
Canada seems stuck in the middle, and so far, there are no indications from China of what the consequences might be.
In a CBC report earlier this week, David Mulroney, Canada's former ambassador to China, says China appears ready to make an example of Canada in order to get the United States to co-operate in the matter.
Exports to China
Canola price charts remain constructive short-term but overhead technical resistance above needs to be overcome soon if bulls want to keep an upward price bias ongoing.
Chart support on the nearby January canola contract is near the $482.50 per tonne level (short-term) and then again down at last week’s reaction lows of $478.30. Overhead resistance remains at $490 per tonne, which about coincides with the 50-day moving average.
Source : fcc