Canola futures have been in freefall through the first half of March, hitting the weakest levels in over a year. But while the losses may appear overdone, the bottom remains to be seen.
“This has been a brutal drop in canola,” said Bruce Burnett, director of markets and weather with MarketsFarm, who blamed much of the latest weakness on speculators adding to short positions.
The latest Commitment of Traders data, as of Feb. 28, showed fund traders already heavily short, with open interest rising to record levels over the past two weeks as canola futures lost roughly $75/tonne.
“The funds are looking for things they think are overvalued, and they’ve determined that canola is overvalued,” Burnett said.
However, he noted that canola futures are now trading at a discount to Chicago soybeans, which would imply canola should be due for a correction as the Canadian oilseed typically trades at a premium.
From a chart standpoint, the May contract fell below several key support points during the latest selloff with the relative strength index showing a heavily oversold market. The nearby may canola contract lost more ground on Wednesday, falling $6.60 to close at $751. New-crop November was down $6.50 at $729.40.
May canola: Source – Barchart
