Logistical issues weaken canola basis levels

Cash prices for canola in Western Canada are trending lower, as basis levels are weaker due to logistical issues in the country.

“We’ve got elevators behind on getting cars, and we’ve got such a big crop out there, not just canola but everything else that’s trying to find its way through the system,” said Jon Driedger, market analyst with FarmLink Marketing Solutions in Winnipeg. “I think all of that tends toward a bit of a weaker basis level overall.”

Basis levels do vary by location, he added, and they could see a bounce at some elevators if they’re in need of some last-minute supplies. But overall the cash market for canola and basis levels will likely remain below the levels seen over the past two years for the rest of 2013-14.

“The past two years have been unusual, whereas what you may find in a lot of places today isn’t necessarily that bad in a lot of cases from what you may have seen several years prior to that when we did have some larger supplies,” said Driedger.

There may be some places where basis levels are “substantially” weaker than historical averages because they may be backed up or behind on rail cars, he added. But things won’t be “crushingly heavy,” because demand for canola this year is pretty good.

Farmers have also slowed down their sales in recent weeks, as prices on the futures and cash markets have weakened. Any price bounces, though, will likely spark a pickup in farmer sales.

“There’s still quite a bit of farmer selling that needs to be done, and as some of these delivery windows fill up you maybe start to get a little bit more of a sense of urgency,” Driedger said.

With the large crop, many of the nearby delivery opportunities are already filled up, he added, and farmers have to deliver later and later.

“If you wanted to deliver tomorrow, in some cases the elevators are full so you wouldn’t be able to deliver the next day or week even if you wanted to,” he said. “I think it’s worse for wheat than it is canola, but certainly canola would be feeling some of that.”

The market is going to have to continue to monitor the logistical situation going forward, as basis levels for canola will partly depend on how the system is dealing with the large crop.

There are some concerns, he added, that things will just keep getting further and further backed up throughout the year.

“We are a little bit concerned about how much crop is going to be left behind in the country,” he said. “You get in the spring and summer particularly with so many elevators in the system being behind, there’s so much crop left to move.”

“That’s definitely a risk and it could be a challenge. Particularly if you go into winter and you find a few weeks with real bad weather or something like that, which could only further add to the problem.”

But it could also end up that the system does a better job than the trade expects, and everyone may be pleasantly surprised come spring or summer, Driedger added.

— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

Related story:
Ritz sees railways doing ‘adequate’ job moving huge crop, Nov. 14, 2013


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