Canada Markets

Canola basis across the Prairies continues to gradually narrow, with a Prairie-wide survey of accessible bids averaging $3.10 per metric tonne over the March future for January delivery. This basis reflects a $2/mt narrowing since mid-November, when the average basis was $1/mt over the January future. Basis levels in the survey ranged from $10 under to $15 over the March future.

With canola futures facing difficulty clearing the $600/mt hurdle, while total disappearance continues well ahead of past years, it is conceivable that basis levels will continue to do the work required to attract stocks into the system. Another factor to watch is that many users had aggressively bought new-crop seed well before the U.S. Midwest drought hit this summer and will be forced to increase their participation in cash markets as they use up the cheaper stocks, creating even more competition for the on-farm uncommitted seed.

While there are many references in market reports about the lack of producer selling acting to buoy the canola futures, this may not entirely be the case. Year-to-date canola deliveries are 1.6% ahead of this time last year and 17.6% ahead of the three-year average. At 356,800 mt, week 19 deliveries were at a 10-week high, which differs from the average deliveries from the three years prior which hit a post-harvest low in weekly deliveries in week 15 and remained flat for the following four weeks.

While canola markets get nervous when visible stocks fall below the 1 mmt level, visible stocks hit this level in week 17 and have increased each week since. Cash basis levels on the West Coast has recently narrowed as well, with a move from $38 over the Jan to $40 over the Mar future on Friday and a further narrowing to $42 over the March today. This move currently generates a similar net price to the grower due to a current $2.90/mt inverse in the market (Jan over the Mar).

Average wheat basis has changed from 93 cents under the Dec in mid-November to 98 cents under the Mar today for January delivery of No. 1 Red 13.5% protein wheat. Producers are following a seasonal delivery pattern with peak deliveries reached in week 18 and with week 19 deliveries falling off sharply. If the three-year average delivery trend is to continue, weekly deliveries will fall by as much as 50% over the next three to four weeks, which may act to keep cash basis levels firm.

One Saskatchewan subscriber suggested that recent wheat market activity has led to an on-and-off sudden narrowing in basis levels to the 64-to-67-cent range in order to fill 100-car trains when they arrive. The necessary purchases are made during a few short days, at which time levels widen back into 90 cents to $1.10/bu. under the March.

Understanding the manner in which local suppliers utilize basis to generate activity can be an exercise that can reap rewards and be well worth the time spent.

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

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