Canada Markets

The canola market is finding itself in an intense battle as spill-over selling from the much-larger soybean market weighs on canola as growing conditions for the soybean crop are viewed as favorable.

The highest close in the November future, as seen at the peak of the red line, was on June 3 at a price of $576.80 per metric tonne. This is consistent with the five-year seasonal index for canola, where on average, prices of the nearby contract have tended to peak in the second week of June over the past five years.

There are a number of potential reasons for this move lower that can help explain this move. Given the tight stocks situation seen on the Prairies, exporters tend to back away, given the inability to put together volumes for unit-train shipping.

A rekindled trading relationship between Australia and China may have eaten into Canada's potential exports, with recent import data indicating January-through-June imports of 202,291 mt of Australian seed imported into China, while a report release today from weeklytimesnow.com suggests that more than 500,000 metric tonnes have been exported to China since the trade routes were reestablished in May.

Crushers also react to ration-available stocks prior to the arrival of new crop deliveries. As seen on the most recent Canadian Oilseed Processors Association weekly report (COPA), crush capacity utilization for the week ended July 17 was 74.4%, while the year to date capacity is reported at 83.4% as compared to the year-ago figure of 89%.

Also of interest is the rapid deterioration in basis, as seen in the trend of the blue line on the attached chart. My Prairies-wide basis is calculated using a number of readily accessible bids across the prairies. Of course, it will not explain all prices in all areas, but what is more important is the trend. The calculation reached a maximum basis on May 12 of $110.67 over the November future. This has since eroded to today's calculation of $6.63/mt over the November future.

This is a good example of how important basis becomes in making marketing decisions. In this case, producers holding old-crop stocks are facing a double-whammy, with futures falling $63.80/mt since the June close ($1.45/bu), while basis deterioration since the high on May 21 is $104/mt, or $2.36/bu. Losses attributed to the weakened basis were $40.20/mt ($.91/bu) greater than losses in the future itself!

In a recent DTN 360 poll, the question was asked regarding the importance of basis in the marketing decisions made. While this was not a scientific poll and the sample size is small, 77% of responses indicated that basis and futures were viewed as two separate markets and the respondent would readily lock in basis independently when it was favorable to do so.

A further 8% suggested that basis and futures were viewed as separate markets although their marketing decisions did not include steps to protect a favorable basis. Eight percent responded that they follow basis although basis did not enter into marketing decisions, while the final 7% responded that they were strictly cash sellers and did not follow basis.

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

(ES)

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