Canada Markets

Tight stocks of protein wheat in the U.S. cash markets in recent weeks have resulted in upward pressure in the nearby March future in relation to the more distant May future. The March/May spread narrowed from a carry of minus 11 cents on Dec. 13 (March future trading under the May future), its weakest spread seen since the week of Nov. 26, 2012, to a high of 2 3/4 cents inverse (March above the May) on Jan. 17. Behind this move was a squeeze on stocks in the United States cash markets, with Canadian logistical issues undoubtedly implicated.

The narrowing of the spread can be seen by the movement of the black line on the lower study which moved above zero or even money on the week of Jan. 13 before reaching a high that same week. Today's move saw a return to a carry market, with the March closing at $6.13 3/4/bu. and the May ending at $6.14/bu., for a spread of minus 1/4 cent.

The issues in the trade can also be seen in cash basis levels reported by the Minneapolis Grain Exchange for spot rail delivery. On Jan. 3, 13% protein Dark Northern Spring traded at $1.90 to $2.00/bu. over the March, while 14% protein DNS ranged from $1.80 to $2.75/bu. over. Basis levels peaked on Jan. 16, with 13% protein hitting $2.80 to $4.25/bu. over, while 14% protein traded $4 to $4.25/bu. over. The March contract closed at $6.24/bu. on Jan. 16, with cash trade as high as $10.49/bu. Tuesday's Minneapolis cash basis report indicates an easing in the cash market to $2.25 to $2.50 over for 13% protein and $3.00 over for 14%.

The third study indicates the challenge for HRS given large supplies of good protein hard red winter. The black line represents the spread between the March HRS contract and the March HRW contract. The spread has lost two cents this week alone, ending today's session at minus 7 1/2 cents (HRW above HRS). This spread has trended higher (HRS gaining on HRW) since reaching a low of minus 19 3/4 cents in early December, although the trend may be challenged as HRS struggles to gain on HRW.

The weekly chart indicates a fresh contract low in today's trade of $6.12 1/4, 1/2 cent below last week's low of $6.12 3/4, to keep the downtrend alive. The second study indicates the weekly momentum indicators are deep in oversold territory although there seems no sign of this trend ending. The further out May/July spread, as seen by the blue line in the lower study, may hold the key to this market as we move forward, with the spread widening 3/4 cents this week to an increasingly bearish 8 1/4-cents carry.

DTN 360 Poll

Last week's poll asked your response regarding the recent announcement from the Canola Council of Canada of the 52-by-2025 campaign, which would see yields increase to 52 bushels per acre by 2025 in order to meet 26 million metric tonnes of demand. You've had your say: 36% of respondents are either excited (4%) or cautiously optimistic (32%); 12% of respondents are undecided; 52% of respondents showed concern with the target; 12% are skeptical that the yield gains could be achieved; 24% are doubtful that demand could be expanded to that extent, while 16% are outright pessimistic, suggesting that the end result would be squeezed profit margins.

DTN thanks all for their responses! This week, we ask where you are at with your 2014 cropping plans. Please share your thoughts on the DTN Home Page.

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

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