A lot of farmers still think the Winnipeg Commodity Exchange canola contract is not working in the real world, even though basis levels this year are better than in 2003-04.
Farmers have occasionally been able to get $4 or $5 per tonne over the futures price, but the positive basis levels this winter are a worrisome sign.
“It seems as if all the movement is in the basis, not in the contract,” said Bruce Dalgarno, chair of the Manitoba Canola Growers Association’s marketing committee.
“There’s nothing forcing convergence (between the cash and futures markets). It looks to me like the players today don’t want to deliver against each other.”
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Last winter the canola association pressed the exchange to explain why basis levels had become so extreme in the fall of 2003, at times reaching $55 a tonne under the futures price.
The MCGA complained then that grain companies were able to stop farmers delivering against the contract by increasing basis charges as much as they wanted. That showed there was no real threat of delivery in the contract.
With only a handful of large grain companies able to qualify for delivery on the contract, farmers couldn’t force convergence between cash prices and futures prices.
“If there’s any threat of delivery, the grain company will just ramp up some other charges so it’s not worth it,” said MCGA executive director Bill Ross.
“Or they just won’t accept it.”
That concern is still there.
The Saskatchewan Canola Growers Association, supported by other provincial canola growers associations including the MCGA, has hired a consultant to review the canola contract. It hopes to suggest reforms to create a real threat of delivery and make the contract a hedging tool upon which farmers can rely.
MCGA executive director Bill Ross said the contract now seems to please the grain companies, but it isn’t serving farmers. If it becomes easier to deliver against the contract, the basis volatility should weaken.
“It wouldn’t take too many guys delivering for the companies to smarten up,” said Ross.
Dalgarno said most Manitoba canola growers are giving the canola contract a chance to improve by itself now that electronic trading has brought new players into the marketplace.
“It’s a wait-and-see right now,” said Dalgarno.
