Prairie canola basis levels soften as futures rally

CNS Canada — The ICE Futures Canada canola market has moved sharply higher recently, but the cash market hasn’t followed along, as basis levels have generally seen a softening trend.

“Generally we’ve been seeing companies widen their basis levels out a bit. Some have held them steady, some have just crept them out a little bit; there are a few places where they’ve widened them out quite a bit to try and keep the flat price what it had been. So it really does vary quite a bit by company and region,” said Jon Driedger, market analyst with FarmLink Marketing Solutions in Winnipeg.

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The market has also run into some old-crop farmer selling at the highs, keeping basis levels under pressure, though farmers may start to get bullish and hold off on old-crop sales in coming weeks.

The new-crop cash market also has more upside potential in coming weeks, according to Errol Anderson, president of ProMarket Communications in Calgary.

“I’m fully expecting that the November delivered basis levels in some areas will be going positive above the November futures,” Anderson said.

The generally tight Canadian canola supply situation and recent unfavourable cold weather that caused frost damage to some Prairie canola crops are all keeping the bias pointing higher for new-crop canola prices.

“The situation in western Manitoba is significant, and already there’s going to be a snugness of supply,” he added. “Certainly there’s time to put this crop in but the problem is seed availability, so some guys will just have to put in wheat.

“So, this, to me, is fundamentally changing canola for the next 18 months; it’s significant.”

Demand for canola should remain strong enough to keep new-crop cash prices underpinned as well, though economic problems in China and Japan could cause some bumps in the road.

“China and Japan are definitely critical to the success of this rally,” Anderson said.

Anderson expects the new-crop November canola future to break into the C$500-$550 per tonne trading range, which could mean C$12 per bushel canola in some areas if basis levels are positive.

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

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