The pace of producer deliveries of canola this fall, which has led to record deliveries in September, has left the industry well-supplied and has weighed on basis levels through the next several months, although most heavily on spot and November delivery.
Week 11 commercial stocks as of Oct. 18 were reported at 1.5278 million metric tons, 28% higher than last year and 26.6% above the five-year average.
It's hard to pin this on lack of demand, with week 11 cumulative exports from licensed facilities reported to be 5.6% above last year's pace, while the latest crush data as of Oct. 21 indicates cumulative crush at 4.3% above year-ago levels.
Cost-of-carry calculations on ProphetX would suggest a bearish Nov/Jan spread which is nearing full carry, while the Jan/March spread is viewed as neutral at 54.77% of full carry. Beyond March, this calculation would indicate a bullish situation with the March/May spread trading at a carry, but below 33% of full carry which DTN views as bullish. The May/July is trading at its widest spread in just over a month at equal money, but is still viewed as a bullish spread.
As seen on the attached graphic, the average basis level on the Prairies, based on available internet quotes, has widened in recent weeks, with the blue bars representing the Oct. 2 calculation and the red bars representing today's calculated basis. While the largest move is seen in the nearby October and November delivery months, this is largely explained by the switch to the January future which closed at a $9.10/mt carry on Wednesday, with the Oct. 2 blue bar quoted at $24.84/mt under the November future and the Oct. 28 red bar calculated against the January future for October and November delivery. The green bars represent the October and November delivery basis reported this time last year.
Moving forward, the focus will remain on whether demand will continue at the current pace, while in early December it is expected that Statistics Canada will increase its estimate for the size of the crop. Soybean futures are drifting sideways on their weekly chart as the world focuses on the next crop to come out of South America, currently expected to be a record although the pace of planting is well-behind average.
Measured in Canadian dollars, the canola price has maintained a steady premium over soybeans between a low of $32.50/mt and $58/mt since late June, closing at $46.35/mt in Wednesday's trade.
Cliff Jamieson can be reached at email@example.com
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