Canada Markets

DTN analysis views the forward curve, simply a line joining the price of a commodity across a number of trading months at any given point in time, as a snapshot of the market's view of the supply and demand of a commodity. In other words, it represents the commodity's fundamental outlook.

An upward-sloping forward curve, with each trading month trading higher than the trading month before it, is viewed as a bearish market. The spread or carry between trading months is an incentive for storing grain, while a price signal that the grain is not needed at the current time.

On the other hand, a downward-sloping forward curve reflects a bullish situation where each trading month is trading higher than the subsequent month. This is reflective of a market that requires deliveries sooner than later, with the absence of carry acting as a disincentive to store grain.

The attached graphic looks at the shift in the forward curve, or the market's view of canola fundamentals, since the beginning of this crop year. The green line represents the curve on Aug. 1, the red line represents the curve on Sept. 1, the blue line is the curve as seen on Oct. 1 and the pink line represents a snapshot of the curve taken on the morning of Nov. 5.

It's interesting to see how the spreads widened as the market became increasingly bearish from the August curve, to the September curve and then again to the October curve. Today's curve (pink line) tells a different story. The Nov/Jan, Jan/Mar, Mar/May and May/July spreads all ended in inverted territory today for the first time this crop year, where each trading month finished above its ensuing trading month. The March/May is the last of the spreads to invert, with the March ending trade $.10/mt above the May today.

The market is signaling a growing bullish sentiment in the market, despite various projections that Statistics Canada will increase canola production on the Prairies when they report their updated November estimates in early December. Yesterday's Manitoba Co-operator reports that China is poised to import a record 5 million metric tonnes in the 2014 calendar year, up 64% from last year, which is just one more reminder of the solid demand facing Canadian shippers.

While basis and spreads may do the heavy lifting this crop year in order to pull the required stocks out of producers' bins, a potential move higher in the futures markets can't be ruled out. A presentation by grain trader and analyst Tregg Cronin at last year's Ag Summit in Chicago suggested that the move higher in prices comes as a result of his Golden Rule, which states 1) first basis 2) then spreads and then 3) futures.

DTN's 2014 Ag Summit will be held in Chicago on December 8 to 10. You can find more information at: http://www.dtnprogressivefarmer.com/…

Hope to see you there!

DTN 360 Poll

Last week's question asked if you believe that markets have reached their lows yet. The results were almost evenly split: 46% of respondents feel that the lows are in. Almost one-third of respondents feel that demand will act as the driver to support prices, while 14% felt that it will be the threat of a supply-side shock which will keep markets supported above their lows, with Brazilian soybeans the stated example.

One half of respondents feel the lows are yet to come, with 40% of the respondents indicating that the big global crops will get bigger while 10% feel that global economy weakness will be the straw that breaks the camel's back resulting in lower prices; 4% of respondents were undecided.

The respondents answered from five provinces -- all three Prairie provinces plus Ontario and Quebec. The most optimistic province was Saskatchewan, with 86% indicating that the lows are in. The most pessimistic views were shared by respondents from Manitoba and Quebec.

Thanks to all for sharing your views and please look for this week's DTN 360 Poll on your DTN Home Page which focuses on grain transportation.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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