Canola futures still bumpy
The new canola futures contract on the Winnipeg Commodity Exchange was to be the oil that calmed troubled trading waters.
But before it was even implemented, canola growers launched an unsuccessful court bid to stop it because they felt it would lower canola prices.
Now, with two trading months experience under the new contract, the turbulence is increasing.
Saskatchewan canola growers passed a resolution at their recent annual meeting asking that the contract be revisited.
The problem is growing basis levels that almost eliminate the threat of a producer delivering against the futures contract, growers say.
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Yet increasing the ability to deliver was a goal of the new contract. A problem of the old contract, which had Vancouver as its pricing point, was that futures and cash prices didn’t always converge.
Moving the delivery point to the Saskatoon region and adding many more elevators that can accept canola deliveries against contracts was supposed to address the situation.
Ken Mannle, president of the Saskatchewan Canola Growers, says early projections showed outside the Saskatoon delivery area, the basis would be about $14 a tonne.
However, some Saskatchewan and Manitoba farmers face a basis of as much as $30 a tonne.
Ted Cawkwell, a producer from east-central Saskatchewan, has looked into getting a delivery warrant and found the grain companies’ elevation charges alone were $17-$20 a tonne.
“Does it really cost these guys that much a tonne to take canola from an elevator and load it into a rail car?” he said in an interview.
“No one minds someone making a reasonable profit, but …”
Cawkwell notes it’s rare that canola actually gets delivered against the future. Most of the time, futures trading is strictly a paper transaction. But without the ability to deliver, basis levels can become unreasonable.
The issue has been referred to the Canadian Grain Commission, which oversees operations of the Winnipeg Commodity Exchange.
Mannle notes in a meeting of canola industry players in February 1996, called to talk about the new canola contract, participants agreed farmer deliveries should be monitored.
They also agreed they should meet again after they had some experience with the new contract.
Peter Clarke, superintendent of grain future trading for the commission, said he has contacted all those represented at last year’s meeting to get comments.
The next step depends on the tenor of those responses, which are due Feb. 14.
