Canada Markets

The sudden narrowing of the July/November canola spread, which saw the spread move from minus $15.20/mt (November over the July) on April 23 to spread of plus $7.50/mt (July over the Nov) on May 14 certainly had a lot of people talking. While cash basis was widening on the West Coast, cash basis on the Prairies narrowed while the spread narrowed to reflect a bullish inversion, driven by nearby demand in the commercial trade.

It's interesting that this took place despite the StatsCanada forecast which suggested that a record 9 million metric tonnes were in the system as of March 31, approximately double year-ago levels; 86.7% of these stocks were reported to be found on-farm.

Are producers behind this apparent supply squeeze? It appears not. Producer deliveries in the week 40 shipping week as of May 11 totaled 322,000 metric tonnes, the highest level of deliveries in three weeks. which is positive given the time of year.

On the attached chart, we see that cumulative producer deliveries into licensed facilities has lagged deliveries into the system in recent years over much of this crop year, although in the shipping weeks 36 through 40, 2013/14 cumulative producer deliveries have exceeded both the cumulative 2012/13 deliveries as well as the average of the previous three crop years. As of Week 40, cumulative deliveries in 2013/14 total 11.748 mmt, as compared to 11.178 mmt delivered in 2012/13 and 11.282 mmt delivered on average over the past three years.

Despite the record crop and record supplies available in the current crop year, cumulative deliveries as of Week 40 in 2011/12 totaled 12.675 mmt, 927,000 mt higher. The 2011/12 deliveries were in response to a record level of disappearance, with 8.7 mmt exported and 7.5 mmt crushed, as compared to the current forecast of 8.1 mmt of exports and 7.2 mmt of crush for the 2013/14 crop year.

The July/Nov inverse may be short-lived. The spread widened $3.70/mt in Tuesday's trade to close at plus $2.10/mt, its weakest spread in seven days. According to DTN's five-year seasonal chart, canola's period of seasonal strength is due to end within a few short weeks, while the data would indicate there is a lot of seed due to hit the market after the busy spring season which will likely move the spread back to a carry as would be expected.

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

(ES)

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