(Resource News International) — The traditional commodity funds are holding large short positions in canola and have been adding to those positions in recent sessions, according to market participants.
Those large short positions could leave canola open to some short-covering related buying, but index funds on the other side are holding equally large long positions.
Trade estimates on the size of the commodity fund net short position range from 9,500 to 15,000 contracts, spread out between the May and July canola futures.
A commission house trader said the funds were busy rolling out of the nearby May contract in recent sessions, but have also been adding to their net short position.
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On the other side, the index funds always trade on the long side of the market and are currently holding a net long position in the July canola futures of 9,000 to 10,000 contracts, according to traders.
The commission house trader noted the index funds finished rolling out of the May contract in late March and were now holding reasonably steady in their position.
Market participants usually follow the movements in the funds with interest, as it is said that a position of 10,000 contracts or more can independently move the futures.
“The fact that the (commodity) funds are short is a sign that when we do get a bit of a rally here, the market is vulnerable to short-covering,” said a grain company trader.
If canola prices move above key technical resistance levels, he said, the commodity funds could come in as heavy buyers covering those positions.
