Canada Markets

The average prairie canola basis, based on accessible internet bids, is calculated at $17.89/metric ton under the March contract, remaining steady over the past week. As seen on the attached chart (blue bars), the current crop trend in basis shows gradual strengthening to an average of $15.05/mt under the July for July delivery.

The spot cash basis has shown considerable improvement since late October when it was calculated as weak as $33/mt under. What is also interesting is the range of bids shown in the cash data. Over the months of April through July there remains a zero basis bid on the Prairies, while also over the same period, the range of basis levels in each month varies from $27/mt to $30/mt. For example, the range of basis levels for May delivery is seen from zero or option price to $30/mt under.

The brown bars represent basis for the same months calculated at this time last year, where the spot cash basis was calculated at $29.90/mt under the March. The difference between current levels and year-ago levels becomes intriguing when one considers how the fundamentals have changed year over year.

This time last year, Agriculture and Agri-Food Canada's February estimates were pointing to a crop year carryout of 1.1 million metric tons, or 5.7% of annual disappearance, which would be down 45% from the previous crop year. This compares to their current estimates, which point to 2017/18 ending stocks expected to climb by 48% to 2 mmt, or 9.6% of estimated disappearance. Concerns of slowing exports were noted in today's Dow Jones ICE Canada comments, which quoted an unidentified Winnipeg trader that suggested carryout could even grow as large as 2.5 mmt.

Week 29 Canadian Grain Commission data shows weekly exports of 129,000 mt, the lowest weekly volume shipped since week 7.

Perhaps a partial cause of the weak export shipments is the weak performance by Canada's railways in recent weeks which slowed movement through the grain pipeline; week 28 industry data indicates that only 49% of the cars ordered were spotted in the country for loading. West Coast unloads for all grains in week 29 fell for the fifth straight week to 331,100 mt, the smallest volume unloaded since week 1 of the crop year, of which 90,200 mt was canola. Stocks of canola on the West Coast have fallen to just 119,800 mt in week 29.

Old-crop futures spreads continue to point to a neutral view of market fundamentals as indicated by the actions of commercial traders. This does not square with the notion of a sharp rise in year-over-year stocks and bears watching.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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