(Resource News International) — Canola bids in Western Canada have a frost premium built into them that could erode if the crops make it through to harvest without significant damage, according to one analyst.
Strong crusher demand, however, will keep basis levels firm even if prices decline, he added.
Canola “is at a crossroads right now,” said Errol Anderson of ProMarket Communications. “There is a frost premium right now, and if we don’t get frost canola will probably start to drop.”
The commodity was somewhat overvalued compared to other oilseeds, Anderson added.
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The United States grain and oilseed markets are currently dominated by two factors, said Ryan Ettner, broker with Allendale Inc. in McHenry, Ill. Ettner said those are the absence of a trade deal with China and the ongoing United States government shutdown.
Cash bids for fall delivery of canola are currently in the $9.10- to $9.60-per-bushel area, said the analyst.
Anderson thought U.S. soybeans could be headed lower, which would make canola even more overpriced by comparison and due for a correction.
However, “if we get a frost, then it’s a different story,” said Anderson.
While canola is overvalued compared to other oilseeds and could be due for a move lower, Anderson expected basis levels would remain firm.
“The crushers will need a lot of canola, so basis levels will be good all year,” he said.
For example, basis levels for nearby delivery offered by Bunge Canada currently range from $18 below the futures in southern Manitoba to as much as $10 over the futures in northen Alberta.
