Canada Markets

The goal in this exercise is to look at how the spread between ICE Canada canola futures and MGEX spring wheat futures in the October through March period, the typical planning period for planting decisions, impact actual seeded acres.

The attached chart indicates that the average October through March spread bottomed in 2006 at $78.51/mt Canadian, as calculated by ProphetX, and has trended higher through to 2013. From 2009 to 2013, the average spread increased each year to a 10-year high of $300.75/mt, which pulled canola acres higher in 2010, 2011 and reaching a high of 22.021 million acres in 2012, as reported by Statistics Canada.

Despite the maximum canola/spring wheat spread of $300.75/mt reached in 2013, canola acres fell 9.5% to 19.936 million acres in 2013, while spring wheat acres increased 12.4% to 19.043 million acres, an indication that the relative spread was overlooked at the time for what could be a variety of reasons.

The most recent average October 2013 through to Feb. 25 canola/spring wheat spread has fallen sharply to $187.82/mt, the lowest level seen since 2010 as indicated by the yellow triangle on the chart. Our made-in-Canada logistical challenges have perhaps helped boost spring wheat futures with the current trade in the loonie boosting wheat prices even higher when converted to Canadian dollars, while the canola trade remains depressed due to the logistical challenges of clearing the country's massive inventory. This scenario is acting to narrow the spread. At the same time, trade analysts are calling for increased acres of canola to be planted in 2014, which would suggest that for the second year in a row, the movement in the canola/wheat spread during the panning period has resulted in an opposite effect in the planted acres for canola.

Not to be overlooked are the challenges faced when making planting decisions for 2014. In a recent DTN 360 Poll, subscribers were asked what will be the No. 1 consideration when developing their crop plan for the 2014/15 crop year.

The results:

-- 3% suggested spring weather and soil moisture in their area

-- 18% responded that their plans change little from year to year

-- 19% indicated the cost/availability of inputs

-- 28% chose the prospects for selling and moving the production next crop year, and

-- 32% said that commodity prices were their largest concern.

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

(ES)

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