Canada Markets

It would seem that the nearby cash canola market on the Prairies is well covered. The average Prairies-wide basis is calculated at $28.94 per metric tonne under the March future for January delivery, the widest of any month through the end of the crop year.

Canola exports for week 23 or the week ending January 11 were reported at only 38,900 mt, the second lowest weekly movement seen so far this crop year, while commercial stocks remain very comfortable at 1.311 million metric tonnes at the end of the week 23 reporting period. As of week 23, producers are reported to have delivered 7.1598 mmt, up 7.8% from year-ago levels.

Between January and May, the basis narrows each month indicating a growing need to meet demand in further out positions. Basis narrows from $28.94/mt under the March for January delivery to $7.61/mt under the May for May delivery, a month where seed prices remain at a premium as producers focus their time and energy in the field and are less willing to deliver grain. Accounting for the inverse in the market and using today's close, delivered prices on the Prairies would range from an average of $9.54/bu in January to $9.89/bu for May delivery.

Cash sellers are forced to watch the direction that futures and basis levels take in order to position their sales, but should also watch the relationship between futures months, or spreads. Current spreads reflect a bullish situation, with an inverse seen in both the March/May and the May/July futures, with the March closing over the May by $5.80/mt and the May over the July by $6.80/mt. Inverted markets act as a disincentive to store grain and reflect the need for deliveries to take place sooner than later.

The trend in the spreads is an indicator of commercial sentiment and may be used to signal sudden changes in sentiment or commercial in this case, commercial bullishness. Today's close in the Mar/May spread of $5.80/mt will need to face a test of resistance at $6.90/mt which was reached on January 5 in order to signal an increasingly bullish situation.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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