Canada Markets

Despite delays experienced on both sides of the border in shipping wheat to end-use markets in the U.S., spring wheat basis continues to widen, with Wednesday's close indicating a cash basis of 15 cents under the May future, 7 cents wider than the previous day and 27 cents under the average basis seen over the past five years. Note that this calculation is based on the difference between DTN's National Spring Wheat Index and the nearby MGEX future, in this case the May future.

As seen on the attached chart, the current basis is trending towards the weakest basis seen in the past five years (purple line) after having recently trending over the red line in December/January, which represents the strongest or narrowest basis seen in the past five years.

The Minneapolis Weekly Grain Report indicates that spring wheat basis indicates cash basis for 14% protein wheat for the week ended March 13 was steady to 35 cents lower at $2.50 to $2.65 over the May. Meanwhile, rail quotes in the Pacific Northwest for 14% protein were $1.90 per bushel over the May for March/April/May one week ago, and have now weakened to $1.90/bu. over for March, $1.80/bu. over for April and $1.70/bu. over in May, a sign of future weakness.

Again, it's important to note that this is taking place while railways in both countries are facing shipping delays. While the Canadian railways are reported to be some 60,000 cars behind, the BNSF railway in the U.S. also reporting to be 13,680 cars behind on its March 6 podcast, or an average of 19.4 days.

The significance of this weakening basis becomes more apparent when one considers a presentation by Tregg Cronin at DTN's Ag Summit in Chicago in December. Tregg, who describes himself as a futures trader/technician/producer, swears by the First Basis, then Spreads, then Futures order of events to describe market moves. The reasoning is that basis is more manageable by the trade and a move in basis can spark a chain of events which can lead to a change in direction in the market.

This theory may be tested soon. While cash basis is seen weakening, the May/July futures spread indicates a strengthening inverse, narrowing a half cent to a plus 4 1/2 cent spread or inverse (May trading over the July), which is a sign of commercial bullish. This trend contradicts the move in the basis and one of these trends should break soon.

Cash basis in Canada remains relatively weak, with many companies showing little interest in deliveries until later in the June-through-August period. The average cash basis across the Prairies as calculated by available online bids is $1.83/bu under the May future for March delivery, which reflects a $5.38/bu. street price, although delivery opportunities will be limited.

Basis levels in the new crop year improve slightly, with the October basis calculated at $1.72 under the December, or $5.51/bu., while January delivery is calculated at $1.52/bu. under the March, or $5.77/bu.

In the meantime, railways will be ramping up shipping each week over the next four weeks until they meet the 5,500 car mandate as set by the federal government for each of the two railways. The current 60,000-cars backlog will undoubtedly keep Canadian basis levels wide for the unforeseeable future.

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

(ES)

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