Canada Markets

A Look at Cash Market Spreads Through May 2018

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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This data points to a rough average cash market spread between the Nov. 29 price and the May 2018 deferred bid, by commodity and by province. Canola is showing the largest returns to storage on a $/mt basis, while several regions of the prairies show inverted bids for both durum and peas. (DTN graphic by Nick Scalise)

Deciding what to store and what to sell can be largely influenced by location on the prairies as well as the grains in question. The attached chart shows the average spread between Nov. 29 spot price and the corresponding May deferred bid and may be used as an indicator of what grains make sense to store and which to sell based on where returns to storage can be generated.

This analysis relies on the notion that those commodities with the greatest spreads or carry reflect the most bearish of market situations where producers are being tempted or paid to store grain for a future period when it is in demand. The opposite is an inverted market, with buyers reflecting their intent to own grain sooner than later, while reflecting this in bids that are higher in spot or nearby delivery windows than indicated for future periods.

As seen on the accompanying chart, the canola market is showing the largest spreads between the spot price and the May deferred price, as measured in dollars/metric ton. The provincial estimates are calculated as a simple average of the spreads shown for the three zones of Alberta that produces prices for, along with four zones in Saskatchewan and two for Manitoba.

One good example of how location affects these spreads is seen in the durum market. Of the six prairie zones that are showing a bid for durum, four report an inverted market (or very close to it) with spot bids higher than the current deferred May bid. The largest cash market spread is seen in southern Alberta, perhaps driven by the west coast export market, although this spread is a modest $7.27/mt or $0.20/bushel. While demand can change over time and this market can still move higher, current market signals are not supporting such a move.

The other market reflecting inverted bids is seen in the market for yellow peas. Prairie bids may be spotty with reporting only two zones in Saskatchewan showing forward bids, which average roughly $5.15/mt below the spot bids reported for this market. Uncertainty surrounding trade with India may continue to result in mixed signals for this market as buyers and sellers attempt to second-guess how long the import tariffs will remain in effect.

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