Prairie canola basis levels still ‘extremely wide’ historically

Updated, Jan. 29 — CNS Canada — Basis levels for canola in some regions of Western Canada have seen slight improvements lately, but they’re still “extremely wide” historically, according to a grain marketing specialist.

“In this area I would say basis levels have widened from early September, probably by $60 to $70 per tonne, depending on delivery period,” said Reid Fenton of BLB Grain Group at Three Hills, Alta.

Based on pricing available from a cross-section of delivery points, basis levels for spot canola were at an average discount of $57 per tonne compared to the futures across Manitoba, Saskatchewan and Alberta on Tuesday.

Average spot cash prices for canola on Tuesday came in at $370 per tonne, or $8.39 per bushel, which compares with the ICE Futures Canada March contract settlement of $426.40 per tonne ($9.67/bu.).

The main reason basis levels are so low is that grain companies say they don’t have any room to take more canola, with some not buying more supplies until June or July, Fenton said.

Companies are running out of room to store canola, as well as other crops, because Canada’s grain handling system is having trouble moving the large supplies.

A record-large canola crop of 18 million tonnes was grown in 2013-14, with very big production from many other crops as well.

Because the railways are having trouble moving the supplies, canola carryout stocks are expected to total three million tonnes for 2013-14, above the 608,000 tonnes in 2012-13, according to a report from Agriculture and Agri-Food Canada.

AAFC also pegged the 2014-15 canola crop at 16 million tonnes. If the upcoming crop is that large, the railway backlog will likely last well into 2015, and basis levels won’t see much relief until the logistics issues are resolved.

“I think the quickest fix, unfortunately, is time,” Fenton added.

But the historically wide basis levels aren’t stopping the selling into the cash market, as some farmers are selling at current levels, while others aren’t.

“Some farmers are even utilizing November and December markets for old-crop,” said Fenton. “If they have 10,000 bushels of old-crop left, they’re selling that for December 2014 delivery and if an opportunity comes along between now and then, then they’ll move the old-crop earlier, and fill the December contract with new-crop.”

There may also be some increased farmer selling coming into the market over the next month, as producers who are light on sales are going to have to start making decisions.

“I think there will be a cash flow crunch coming shortly, say, within the next 30 days,” Fenton added.

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

CORRECTION, Jan. 29, 2014: Dollars-per-bushel numbers have been corrected.

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