Canada Markets

The forward curve of any commodity is simply a line which plots out the value of each consecutive futures contract price and tells a story of how the commercial trader views the market. On the attached chart, we see that old-crop fundamentals remain extremely bullish, despite the recent market action, with the closing futures as seen below. This is referred to as an inverted market, where nearby contracts trade higher than further-out contracts, and is represented by the steep downward sloping line from the July to the November future. Commercial traders are sending the signal that they need seed sooner rather than later and are willing to pay more for it.

It's difficult to determine just how many canola acres will go into the ground, given the delayed seeding that will take place across the Prairies, although the most recent indication from Stats Canada from their March intentions is suggesting acres will fall to 19.1 million acres, down 11.1%. Many in the trade believe that acres will fall, although to a level between last year's 21.5 million acres and the 19.1 million acres forecast by Statistics Canada. While early forecasts suggested that the Canola Council of Canada's goal of 15 million metric tonnes of production by 2015 may be realized as much as two years early, this target may be slightly out of reach.

Perhaps what is most important is how the new-crop market is reacting to the available news. As seen on the attached chart, the line from the November 2013 through to May 2014 has a much flatter slope, although remains downward sloping, which indicates a slightly bullish sentiment continues into the new-crop months. This is also confirmed by an average Prairie-wide October basis reported yesterday of $15.86/mt, which has moved very little in recent months although remains historically aggressive. The narrowest levels are seen in Alberta, driven by the close proximity to export facilities, where single-digit new-crop basis levels remain in place.

May 8 close:

July 2013 $602.30/mt

November 2013 $536.40/mt

January 2014 $537.00/mt

March 2014 $532.50/mt

May 2014 $530.40/mt

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

(AG)

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