CNS Canada — ICE Futures Canada canola futures have strengthened recently, but the western Canadian cash market for canola hasn’t followed along.
Farmers “keep telling me that the futures go up, but the basis isn’t keeping pace,” said Keith Ferley of RBC Dominion Securities.
Some locations, he added, have widened out basis levels so much that they’re still not offering $10 per bushel bids, which was surprising given that the March ICE canola contract has been trading above the $450 per tonne level recently.
Errol Anderson of ProMarket Communications in Calgary noted that the $10 per bushel level seems to be the top of the cash market, and has been offered in many areas over the past 10 days.
The $10 per bushel mark triggered some farmer selling, which may be the reason why some companies are starting to defer delivery to March, April and sometimes all the way out to June, meaning they seem to be covered for the time being.
“If you really need it, then you should be showing premiums, and there don’t seem to be any aggressive basis levels out there saying ‘We need this stuff ASAP,'” Ferley added.
Anderson said the weakening basis levels may be a warning that canola prices will see a late-winter setback, as futures prices seem to be higher than what’s being offered on the global market.
“The true global market isn’t that market, that’s the bottom line, and there’s no shortage of canola. We’re going to have a carryout this year,” he added.
In order for basis levels to improve, and grain companies to stop deferring delivery, more export sales need to be booked, according to Anderson.
“It’s not so automatic that canola will be bought up by the world, and I think that’s what’s surprising the grower right now,” he said.
“There has to be fresh sales made, and there will be. But we’re into a global grind, and canola is part of it. Especially with the crude oil falling out the way it has, it will be difficult for the grain markets to rally through the crude washout.”
— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.