The weakening May/July canola futures spread, which closed at minus $6.50/metric ton on Thursday, combined with a static cash basis this month is a troubling combination. This is despite a $31.90/mt loss in the May future so far this month, a continued record pace of disappearance in both crush and exports, strengthening Vancouver cash basis, and weakness seen in the Canadian dollar over the month. There are also concerns surrounding the availability of supplies through the balance of the crop year. As well, the delivered basis in the months of April-through-July are weakening over the course of this week.
As seen on the attached chart, the spot cash basis, based on accessible internet bids, is calculated at $27.86/mt under the May on Thursday, which compares to only $15.64/mt under in 2015/16 and $28.47/mt in 2014/15 for the same date. Interestingly, this time last year government forecasts had pegged 2015/16 ending stocks at 1.85 million metric tons, which represented ending stocks as a percentage of use at 10.4%, which was later revised higher to 2.016 mmt. This compares to current 2016/17 estimates calling for a 1.1 mmt carryout, which would suggest stocks as a percentage of use at a much tighter 5.7%.
The 2014/15 cash basis was calculated at $28.47/mt under the May on March 23, 2015; similar to what is experienced today. It is interesting that at the time, ending stocks were estimated by the government at 1.45 mmt for 2015/16, which was later revised higher by over a million tons to 2.542 mmt.
With projections for a record soybean crop on the way in South America, it seems like it may take a lot to rattle global oilseed markets. Statistics Canada's March 31 stocks report will be the next opportunity to evaluate what's left to cover the oilseed needs over the balance of the crop year, due to be released on May 5. Until then, changes in the trend of weekly demand statistics, producer delivery statistics, the level of commercial stocks in the system and a change in spreads may provide signals surrounding a change in sentiment.
Cliff Jamieson can be reached at email@example.com
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