Wittal: Wheat PROs flat, canola basis widens

Oct. 22 — Financial markets were positive today and energy markets were neutral. Grains were mixed from the start and profit-taking was once again the theme for the day. No new news was available to help push grains up, so they struggled throughout the day, ending with mixed results on the U.S. markets — and sharp losses for canola. There seems to be a backlog of canola in the system at the moment and no new sales reported to help stimulate the market.

The U.S. dollar was up modestly today. The Canadian dollar closed down 0.87 cents today at US95.39 cents.

The Dow Jones December quote closed up 134 points at 10,035 today.

Crude oil closed down 18 cents a barrel today at US$81.19.

Corn closed up three to 5.2 cents a bushel today, while beans closed down one to three cents.

Wheat futures closed up 2.6-9.2 cents a bushel today. Minneapolis December wheat closed up seven cents a bushel for the day.

Canola dropped hard, down $8 to $16.10 per tonne today.

November Western barley futures closed up $5.50, at $165 per tonne.

China’s request

What a difference a day can make!

Checking canola basis levels this morning, I see that the grain companies have started to widen out their basis levels even more. Nearby basis levels that were +$3 to -$1 per tonne last week are -$9 to -$16 per tonne today. This could mean a potential loss of 10 to 40 cents a bushel to your net return if you didn’t lock in a basis earlier when they were in positive territory.

This adjustment brings basis levels back in line with more historic levels, which tells me they are not likely to return to positive levels anytime soon and could continue to widen as time goes on, depending on export sales and what the dollar does over the next few months.

Information circulating today within the trade is that China has requested phyto certificates for Canadian canola shipments from the Canadian Food Inspection Agency (CFIA), verifying that the cargos are blackleg-free — and that China has also requested certs that specify shipments are free of specific weeds that are present in Canada.

The information I have read says that the CFIA and the trade are going to be having a conference call tomorrow to discuss the impacts of these requests and what can be done to resolve this.

Now the widening of basis levels and the hard drop in the canola futures today makes sense, as the trade is responding to a situation that could carry huge ramifications depending on the outcome of these requests being made by the Chinese.

Pool outlooks and wheat pricing

The Canadian Wheat Board’s October pool return outlook (PRO) update came out this afternoon with minimal adjustments, as wheat PROs stayed the same. The durum PRO was dropped $8 per tonne, malt barley was dropped $4 per tonne and feed barley is unchanged. Hopefully this is a good sign that the CWB is confident it can maintain these current values going forward.

This now brings me back to yesterday’s topic of pricing strategies for wheat.

If you are confident the PRO may hold at these levels then I would not suggest you use the EPO as part of a pricing strategy. The wheat futures rose again today so that the current FPC for CWRS is at $238.20 per tonne. The PRO is $245 per tonne.

A couple of things to consider when deciding if you should price your wheat using the FPC or just deliver to the pool:

If you use the FPC, the price is guaranteed and you will get all of your money within 10 days after receiving payment for the wheat when you deliver it.

If you deliver into the pool the PRO can still change up or down, and you only get the initial price when you deliver and then you have to wait several months for interm and final payments to get al

l of your money.

So, if the FPC value is close to the current PRO value, or if the futures continue to rise so that the FPC is above the PRO, it may make sense to use it so that you have a locked-in price and get your money sooner.

Food for thought! 

That’s all for today. — Brian

— Brian Wittal has spent over 27 years in the grain industry, including as an elevator manager and producer services representative for Alberta Wheat Pool, a regional sales manager for AgPro Grain and farm business representative for the Canadian Wheat Board, where he helped design some of the new pricing programs. He also operates his own company providing marketing and risk management advice for Prairie grain producers. Brian’s daily commentaries focus on how domestic and world market conditions affect you directly as grain producers.

Brian welcomes feedback and information on market conditions in your area, such as current offering prices, basis levels, trucking premiums and special crops contracts. Contact Brian today.

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Brian Wittal

Brian Wittal has 30 years of grain industry experience and currently offers market planning and marketing advice to farmers through his company Pro Com Marketing Ltd.

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