Analysis for both the soybean and canola markets point to a strong pace of demand, the potential for extremely tight stocks at the end of 2020-21 and the need to ration demand over time. At the same time, the two cash markets are sending mixed signals.
As of Jan. 4, or the first trading day of 2021, DTN reported the national average soybean basis at 41 cents under the March contract, unchanged from the previous session on Dec. 31. This basis compares to the 60 cents under reported for the same date in 2020, the three-year average of 74 cents and the five-year average of 68 cents. Basis could strengthen even further when the USDA updates their forecasts for 2020-21 on Jan. 12, with expectations that demand will be revised higher while projected ending stocks are revised lower.
Vancouver track canola trade is showing strength. This trade was reported at $60/metric ton over the March contract on Jan. 4, which compares to $15/mt over on Jan. 3, 2020 and the three-year average of $23.67/mt over.
This strength has yet to develop in the country. The brown bars on the attached chart show basis levels reported by pdqinfo.ca for the nine prairie regions reported across the Prairies. This is compared to the same time last year (grey bars) and the three-year average (blue bars).
This same chart was shown in a Canada Markets Blog on Dec. 1. Since that time, basis has strengthened from a modest $0.92/mt to $2.43/mt across the seven regions of Alberta and Saskatchewan, while weakening $1.10/mt in western Manitoba and $2.34/mt for eastern Manitoba.
When compared to one year ago (brown bars versus grey bars), only four of the nine regions show a stronger basis -— the Peace region ($2.68/mt), northern Alberta ($2.54/mt), western Manitoba ($0.71/mt) and eastern Manitoba ($1.26/mt), with the year-over-year change in brackets.
Of the remaining five areas, basis has weakened from $0.60/mt to as much as $8.09/mt. Across the nine regions, basis has weakened an average of $1.58/mt.
This is hard to accept when one takes into account the fundamental outlooks from one year to the next. One year ago, Agriculture and Agri-Food Canada was forecasting a 3.5-million-metric-ton carryout, reflecting a stocks/use ratio of 18%. The most recent AAFC forecast has pegged 2020-21 stocks at 1.2 mmt, with the stocks/use ratio pegged at 5.8%. The current pace of movement points to the potential for an even tighter carryout, with exports running well-ahead of the forecast pace.
When compared to the three-year average (brown bars versus blue bars), current bids across all regions of the Prairies are weaker than average, ranging from $1.71/mt weaker than average in the Peace to as much as $16.16/mt weaker in southeast Saskatchewan, while averaging $9.10/mt weaker.
As mentioned in the past, the continued move higher in futures has done the heavy lifting to result generate attractive prices for sellers. Producers have delivered 9.6092 million metric tons into the licensed handling system, as of week 21 or Dec. 27, up 912,800 mt or 10.5% from the same period in 2019-20 that included data through week 22. Commercial stocks are reported at 1.6677 mmt, up 21.2% from the similar period last year and 35.4% above the three-year average.
As stated in the past, if one believes in the current estimates for 2020-21 supplies, old-crop marketing strategies should focus on capturing a narrower basis later in the crop year. The second half of the crop year, or February through July, may force buyers to work harder to attract grain onto the driveway.
DTN 360 Poll
This week's poll asks how you view soybeans as a cropping choice for 2021. You can weigh in with your thoughts on this poll, which is found on the lower-right side of the DTN Home Page. We thank you for sharing your views.
Cliff Jamieson can be reached at firstname.lastname@example.org
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