Canola cash basis levels weaken as harvest rolls along

CNS Canada –– The cash market for Canadian canola continues to soften, with one commodity analyst pegging its range at $20-$30 under the price being paid for the near-term (November) contract.

Last week’s bearish report from Statistics Canada put a damper on already-weak trade between farmers and companies, according to Errol Anderson, president of ProMarket Communications in Calgary.

The November canola contract on Friday settled at $454.50 per tonne, roughly $20 lower than the previous week. That downward trend was sparked by Statistics Canada’s ending stocks report for canola, said Anderson.

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The report put 2.3 million tonnes of canola in Canada’s overall stocks as of July 31 — significantly higher than what analysts had been predicting heading into the report.

“For the basis (level), I think we’ll see it $20-$30 under what futures are. Somewhere in that ballpark,” he said, adding the November contract would likely drift between $440 per tonne and $470 in the near future. (The November contract closed Tuesday at $462.10 per tonne.)

“That’s kind of the near-term window as I’ve seen it,” he said.

In addition to the report’s gloomy outlook and the advancing harvest, farmers also have to deal with yields coming out a little better than expected, and an expected decrease in export demand, he said.

A year ago, he said, cash bids were roughly $20 above the futures market but that has changed with the increase in canola supplies.

However, with the export demand expected to weaken, according to Anderson, that could mean next year’s carryout is approaching three million tonnes by July.

“That means the basis levels will be ‘come and go,'” he said.

The U.S. Department of Agriculture is scheduled to release its World Agricultural Supply and Demand Estimates report for the fall on Friday. Depending on what the report finds, canola could either creep higher or plunge lower, according to Anderson.

“If (the report is) bearish we can definitely go lower,” he said.

As for higher, Anderson said, $10 or $15 might be the highest values can reach before the bearish factors take hold once again.

“I think to move up to $500 (per tonne) again is a stretch,” he said.

Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Follow CNS Canada at @CNSCanada on Twitter.

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