Basis levels on the canola cash market in Western Canada have started to come off their highs, as some buyers are looking ahead to new crop.
The inverse between old- and new-crop values is “enormous” due to the extremely tight Canadian canola supply situation, so buyers are only purchasing what old crop they absolutely need, said Jonathon Driedger, market analyst with FarmLink Marketing Solutions in Winnipeg.
According to Prairie Ag Hotwire, old-crop canola values on the cash market delivered to the elevator in Western Canada ranged from $14.50 to $15.39 per bushel on Wednesday. New-crop values were $12.25-$12.82/bu.
“Anyone who is buying grain, whether it’s an elevator, a crusher, anything like that, the last thing in the world they want to do is end up holding onto more inventory at these prices than you need to because they’re going to have much, much cheaper supplies available coming off in a few months,” said Driedger.
Some buyers have already moved to trade off of November futures, which is a sign that some buyers have their needs covered for now.
“The practice of looking at the next futures month earlier than you ordinarily would is not uncommon when there’s a real sharp inverse,” said Driedger. “In those cases, maybe those are buyers that are showing less urgency in needing to buy more old-crop canola.”
“It could be their own individual circumstances where maybe they don’t have fresh business on the books, or maybe they have fresh business on the books but they’re fairly well covered.”
Basis levels have also started to ease from their highs in U.S. soybean cash markets, which the Canadian canola market generally follows.
Driedger noted the Canadian cash market’s easing basis levels were following the situation in the U.S. soybean markets to some extent. But the Canadian canola markets have their own story too.
“Seeding progress has been tremendous over the last couple of weeks across most of Western Canada,” he said. “And through a lot of the areas people are focused on, the conditions are fairly good.”
Driedger noted buyers are more comfortable with waiting to buy new crop because they’ve become more confident that it’s going to be a good crop than they were a couple of weeks ago, when planting delay concerns were more prevalent.
But that doesn’t mean basis levels don’t have a chance to come back up again.
“You may still end up having buyers that for whatever reason end up getting caught short, whether it’s a crush plant that wants to keep running or an exporter that’s got some new business,” said Driedger. “I wouldn’t rule out the potential for a spike up in basis levels still in the next few months.”
Though, if basis levels do move higher again, it probably wouldn’t be on a widespread basis. Driedger said it would probably be limited to just a smaller handful of companies.
— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.