Canada Markets

Unlike the Prairie cash market for canola, which has shown some level of basis improvement in recent months, the red spring wheat market continues to show no signs of improvement.

First is recent movement in the old-crop futures. The July has fallen from a high of $8.13 1/2/bu. on May 6 to Friday's close of $7.25 1/2/bu. While the nearby July contract is trading in the lower 34% of the trading range traded over the past five years, the short-term trend remains lower, as markets have come to terms with the prospects for ample global supply in the upcoming crop year.

This is not the season to find strength in the spring wheat market. The five-year seasonal chart would indicate that the nearby spring wheat contract would reach its highest level since the start of September and then drift lower over the next five weeks to reach a seasonal low in early July.

Spring wheat basis on the Prairies continues to be an issue, with the average Prairie-wide basis for cash wheat indicating an average of $1.79/bu. or $65.77/bu. under the July future leaving the average bid at $5.47/bu., which remains just $.10/bu. narrower than the weakest average cash basis calculated over the winter at $1.89/bu. under the nearby future, based on available internet quotes.

Rick White, CEO of the Canadian Canola Growers Association, suggested in a press release today that a sustained wide cash basis level in canola is the direct result of the shipping delays faced over the winter months and is a part of the justification for a Level of Service Complaint against the railways, while the blow to the wheat market on the Canadian prairies is even more severe. Canola basis has narrowed somewhat in recent weeks while wheat basis has remained stuck at current levels. Today's calculations indicate the August delivery basis at $1.71/bu. under the September, while the October delivery basis widens out to $1.82/bu. under the December.

Canadian Grain Commission data as of week 41 indicates that the market is well supported by producer deliveries. In five of the past 10 weeks, producer deliveries of wheat have exceeded 400,000 mt, with only the three weeks from week 5 to week 7 seeing higher weekly deliveries. Week 40, which covers the week ending May 11, saw 490,200 mt delivered into the system of licensed elevators, the fourth highest weekly deliveries seen this crop year.

Visible stocks of wheat in the system were reported at 2.6505 mt for week 41, having moved lower over each of the past six weeks. As of the May 18 ending date for week 41, visible stocks in the licensed handling system was 2.6% above year ago levels and 11.8% above the level two years ago which provides little reason for panic.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(ES)

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