Canola cash market falling along with futures

The canola cash market has weakened recently, following along with the falling ICE Futures Canada canola market.
Recent weakness in the futures market is linked to reports of generally favourable weather conditions for Western Canada’s canola crop, as well as technical based selling.
Jon Driedger, market analyst with FarmLink Marketing Solutions in Winnipeg, said that in recent history, cash prices have managed to hold up when futures prices fall because basis levels have firmed in response.
However, the recent break in the futures market below support of C$520 per tonne affected the cash market differently because basis levels haven’t improved, Driedger said.
Buyers don’t really have incentive to raise basis levels at this time, Driedger said, even though farmers aren’t actively selling.
However, it is possible that basis levels and cash prices could see start to strengthen as harvest approaches.
“If you start getting into harvest and farmers start looking at the price and say ‘you know what I’m just going to be patient rather than sell at these levels’ then I think we could see those basis levels firm back up,” Driedger said.
Buyers are going to need to entice farmer selling in the fall because there’s a good export program booked, and crushers will need to cover their needs, Driedger said.
There’s also the possibility that both futures and cash prices move higher going forward if the market experiences some unexpected demand or a weather scare.
But, if the generally good weather conditions continue, and prices stay down at recent lows then farmers may start selling their crop without the incentive of stronger basis levels.
“If we’re sitting at these levels at harvest and the crop comes off in good shape and some (farmers) have bushels that they didn’t intend on harvesting, then you could see some pick up in selling,” Driedger said.
As of July 22, old-crop cash canola prices ranged from C$11.67 to C$12.81 per bushel across Western Canada, while new-crop values were in the C$11.11 to C$11.68 per bushel range, Prairie Ag Hotwire data showed.
That compares with month ago prices of C$13.45 to C$14.38 per bushel for old crop, and C$11.93 to C$12.50 for new crop.

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