Canada Markets

Canola's Forward Curve Over Time

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
Connect with Cliff:
@CliffJamieson
The movement in canola's forward curve, a line plotting closing prices for each successive trading month at a given point in time, grew increasingly bearish from Aug. 1 through Oct. 1, as seen in the move from the turquoise line to the green line to the red line, while has since grown increasingly bullish as seen in the move from the blue line (Nov. 1) to the pink line (Dec.24). (DTN graphic by Nick Scalise)
The movement in canola's forward curve, a line plotting closing prices for each successive trading month at a given point in time, grew increasingly bearish from Aug. 1 through Oct. 1, as seen in the move from the turquoise line to the green line to the red line, while has since grown increasingly bullish as seen in the move from the blue line (Nov. 1) to the pink line (Dec.24). (DTN graphic by Nick Scalise)

The forward curve for canola, which simply plots consecutive trading month closes as seen at a particular point in time, has grown increasingly bullish over time, despite production data which is becoming increasingly bearish.

The most recent curve, described as the market's view of canola's fundamentals in DTN analysis and shown by the downward-sloping pink line on the attached chart, is characterized by an inverse seen in the Jan/March, the March/May, the May/July and the July/November futures (with each contract trading higher that the contract which follows, a sign of commercial bullishness indicating that seed is needed sooner rather than later.

Over the past month, Statistics Canada estimated the size of the prairie crop to have increased from the September estimate of 14.1 million metric tonnes to the November estimate announced in early December of 15.6 mmt. Industry also breathed a sigh of relief that the Order in Council which set minimum mandatory shipping volumes for Canada's two railways will be extended, although at lower volumes.

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Agriculture and Agri-Food Canada reacted to Statistics Canada's higher production estimate by increasing the country's potential exports by 800,000 metric tonnes to 9.2 mmt, while also increasing domestic crush by 100,000 mt to 7.2 mmt. This is suggested to lead to a 1.450 mmt carryout in 2014/15, which is 38.6% below year-ago levels and reflects a tight stocks/demand ratio of 8.7, down from 14.5% last year.

Perhaps this is enough to keep industry on edge, with prices flirting with the upper-edge of the range traded over the past week on the March contract, a $42.80/mt range which has been in place since the week of Aug. 18. At the same time, the more bullish forward curve may be suggesting production may not be as high as estimated by Statistics Canada, as viewed by the commercial trade.

Week 20 statistics from the Grain Commission as well as COPA's crush data will be delayed until next week due to this week's holiday.

I will be on holidays over the next week and the Canada Markets blog will resume on Jan. 5.

Wishing you a safe and prosperous New Year!

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(AG)

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The movement in canola's forward curve, a line plotting closing prices for each successive trading month at a given point in time, grew increasingly bearish from Aug. 1 through Oct. 1, as seen in the move from the turquoise line to the green line to the red line, while has since grown increasingly bullish as seen in the move from the blue line (Nov. 1) to the pink line (Dec.24). (DTN graphic by Nick Scalise) 
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