Canola's 2012 gain from its daily close on Dec 30, 2011 of $525.80 per metric ton was $76 per mt, a 14.5% increase. Given the extremely tight fundamental outlook for the crop, the loss of $55.70 per mt from this September's high to today's close is a hard pill to swallow.
Last week we looked at futures spreads for canola, focusing on signs that spreads were strengthening rapidly, with commercial activity being behind this move. These spreads continue to strengthen, with today's close resulting in a Jan/Mar spread of $11.90/mt, a Mar/May spread of $5.60/mt and the May/July spread weakening to $3/mt. All spreads are inverted, meaning that crushers and exporters are in need of the seed, sooner, rather than later. Unlike soybean spreads, which are showing only modest strength in the later months due to the expectation of a record South American crop, canola spreads have strengthened rapidly in recent weeks, including the further-out months.
Canola's seasonal chart also provides reason for encouragement. The attached chart shows the nearby front-month contract, as represented by the red line, plotted against the 5-year seasonal index (blue line). The 5-year seasonal tendency is for a roughly 8% gain from the start of the year to its first peak in late February. Using the front-month January close of $601.80/mt, this movement could result in a move to the $650/mt level.
Cash basis levels have strengthened slightly across the prairies in recent weeks. A survey of accessible bids across the prairies resulted in an average cash basis of $4.35/mt over the March for January delivery, as compared to $3.10/mt over the week prior to Christmas. Recent weather over the prairies no doubt contributed to this firmness. Peak levels found are in the $15 to $20 over the March range.
While the Grain Commission did not release their Grain Stats Weekly this past Friday, this Friday will see the release of week 21 and week 22 data that should point toward the ongoing trend of slightly lagging exports while domestic crush continues at a rapid pace. Despite the need to ration stocks, this has yet to take place.
Closely following this situation over the next 8 weeks may lead to rewarding marketing opportunities. The seasonal chart indicates that prices back off in March and April before gaining strength to reach seasonal highs in late May through June.
I would like to wish you all a Happy New Year. With the Canadians beating both the U.S. and the Russians at the World Junior tournament and an automatic bye into the semi-finals, we should be assured of good hockey in days to come. Here's also hoping that the U.S. policymakers can come to terms this afternoon to avoid the plunge over the so-called cliff and that grains may once again focus on their own fundamentals moving forward.
Cliff Jamieson can be reached at email@example.com
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