Canola: Deceleration gives way to correction   Given the rally’s recent deceleration, this correction was anticipated and will soon run its course. All things considered, Canola’s downdraft should be relatively minor and short-lived. PCC continues to forecast the beginnings of the next major advance around mid-September. Please refer to the “best guess forecast” line.   There are several reasons to expect only a moderate correction. For openers, Canola’s typical seasonal tendency changes direction in the weeks ahead. As well, old resistance can become future support and, although provincial average prices are quite different this year, each should find underpinning in its own way.   Those provincial average prices reflect wildly different Basis levels. The current Saskatchewan Basis is not only below last year’s harvest level but also rivals the lows of last year’s rain and snow soaked marketing challenge. With cash prices already trading at deep bargain levels to futures, things are more likely to get better than worse.   Other factors could help too. Consider our currency. Canada now has a new Finance Minister while a Throne Speech with an attached “vote of confidence” will be delivered next month. In this environment, forex traders are likely to become more cautious now that the Loonie’s recovery has reattained its former trading range, and it should stall or pullback somewhat. The completed Elliott Wave 5 Count suggests the recent bull surge is nearly exhausted and a “dog leg” or A-B-C correction is possible. Obviously, a slightly weaker Loonie would benefit Canola pricing.   Finally, it is important to remember the bigger chart picture. Canola futures expressed in US dollars may be encountering historic resistance at roughly the US$8.25/bu level, but the probability that recent action is a major asymmetrical ”double bottom” indicates that Canola prices in May-June 2021 could be retesting the highs of the past five years!   Canola looks good.

August 21, 2020

Chart analysis and commentary by Harold AGJ Davis