Despite uncertainty linked to recent wind damage and potential frost damage, and given the uncertainty linked to the overall crop size -- with the most recent July estimates showing a smaller crop than expected -- cash basis is seen continuing to weaken on the Prairies. This signals a growing bearish view of the market on the part of commercial traders.
As of Sept. 8, basis across the nine regions of the Prairies monitored by pdqinfo.ca was reported to range from $29.14/metric ton under the November contract in northern Alberta to $42.75/mt under for southeast Saskatchewan. These levels represent no change in the Peace Region from the Sept. 4 close to a weakening of up to $0.78/mt across the other eight regions of the Prairies.
Note that this move was made at a time that followed concerns of wind damage in the eastern Prairies along with the potential for some late crops to be negatively affected by a historic frost on the Prairies on Sept 8.
During the past week (Aug. 28 to Sept. 4), basis across these nine regions weakened from $0.50/mt to $2.72/mt, averaging $1.47/mt weaker overall. This is consistent with September activity with harvest pressure weighing on price potential.
When compared to a year ago, cash basis ranges from $6.27/mt to $15.95/mt weaker than reported one year ago, while averaging $10.28/mt weaker in the fall of 2020 across the nine regions. The greatest weakness is seen in northwest Saskatchewan, as indicated on the attached chart, with the Sept. 8 basis reported at $41.91/mt under the November contract which compares to the Sept. 6, 2019 basis of $25.96/mt under the November 2019 contract.
Ahead of the Sept. 14 Statistics Canada production estimates, based on August model results, there exists a conflicting signal in the market that bears watching. On Sept. 8, The ICE Canada Exchange reported the Vancouver cash basis showing modest weakness of $1/mt, from $25/mt to $24/mt over the November contract, consistent with weakening basis in the country. At the same time, the Nov/Jan futures spread has strengthened $1.50/mt from its August low to minus $6.80/mt. This signals a neutral view of fundamentals overall, despite the recent prior-year adjustments made by Statistics Canada that increased the crop size in 2018 and 2019 by over 1 million metric tons combined.
Demand also bears watching. The current Agriculture and Agri-Food Canada supply and demand tables show a reduction of 1.680 million metric tons in total estimated demand from 2019-20 to 2020-21, while the current pace of movement shows total demand (crush plus domestic use) ahead of last year's pace after four weeks of activity in 2020-21.
Harvest time is rarely a good time for selling. As the rush of deliveries slows off the combine as harvest nears an end, watch for the potential for basis strength that could prove attractive along with the recent strength seen in futures.
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Cliff Jamieson can be reached at email@example.com
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