Analyst sees no end in sight for wide basis level

High ending stocks | With an abundance of crop, grain handlers see no urgency ‘to chase your grain’

DTN’s Canadian grain analyst painted a bleak picture of wheat and canola markets in this country.

Cliff Jamieson suggested that burdensome stocks will constrain domestic prices and keep prairie basis levels at or near their current levels for at least a year, with only a slight chance of improvement be-tween now and next March.

According to Agriculture Canada, carryouts of Canadian wheat and canola will be double the five-year average, with wheat, excluding durum, at nine million tonnes, and canola at 2.4 million tonnes.

Jamieson said actual carryouts as of July 31 could exceed this already bearish forecast unless grain movement improves a lot.

“I have concerns that we’re behind the pace that’s needed to meet those targets,” Jamieson told the Grain Handling and Transportation Summit in Saskatoon last week.

Disappearance — the total of exports and domestic use — of Canadian wheat and canola is lagging behind the pace needed to meet Agriculture Canada’s ending stocks forecasts, he added.

Durum disappearance was 59 percent as of March 16, canola disappearance was estimated at 55 percent and spring wheat disappearance was lagging at 45 percent of Agriculture Canada targets.

Exports of wheat, excluding durum, were roughly one million tonnes behind the pace needed to reach Agriculture Canada’s total export estimate of 17 million tonnes.

“I show that we’re behind, right now, by about a million tonnes of the steady pace, or the cumulative pace needed to meet that (17 million tonne export) target,” Jamieson said.

The domestic canola crush is also lagging.

Domestic crush is eight to 10 percent behind last year’s pace and 260,000 tonnes behind the pace needed to meet Agriculture Canada’s 7.2 million tonne target.

Canola exports are 309,000 tonnes behind the pace needed to hit Agriculture Canada’s canola export target of 8.1 million tonnes.

Jamieseon said large carryouts, combined with the next harvest, are bearish for future crop prices and prairie basis levels.

“Canola is perhaps painting the bleakest picture,” he said.

“We’re looking for calls for canola acres to be up some seven percent, and if that materializes … supplies for canola are going to be above last year and above the five year average.”

Jamieson said DTN’s projections show prairie basis levels remaining unusually wide for at least the next year, a signal that the trade is in no hurry to chase producers’ grain.

The average wheat basis, based on posted offers across the Prairies, was pegged at $1.74 per bushel below nearby Minneapolis futures, improving to roughly $1.36 under by next March.

“I don’t think anybody in this room would look at that as a favourable situation going forward,” Jamieson said.

“The bottom line is that there’s simply no urgency amongst the grain handlers. They don’t need to chase your grain. They know it’s out there … and we know this situation is going to carry on well into next year.”

Canola basis levels were also expected to remain wide, he said.

DTN projects that the current prairie average canola basis of $54 per tonne below nearby Winnipeg ICE Futures will widen to $65 in September before returning to $55 per tonne next March.

“Again, there are a lot of things going to change, and they always do, but looking forward, there’s just no urgency,” he said.

“Canola supplies are going to be huge and we’re going to grow more acres next year. We need to get rail movement to tighten supplies and improve these basis levels.”

Jamieson said export certificates issued in Europe suggest that more than 200,000 tonnes of Scandinavian oats are set to move between now and June, most of that destined for American mills.

“It should be embarrassing to Canadians, the fact that (they’re) loading boats in Sweden to deliver to the U.S. because we can’t get our railcars there.”

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