Current canola basis levels should have farmers smiling.
Exports are so brisk and movement so steady that there have been reports of basis levels of almost zero in Alberta, $10 under in northeastern Saskatchewan and $7 under in south-central Saskatchewan.
It’s a significant improvement from last fall when the basis level was wider than $70 under in parts of Saskatchewan.
And, says analyst Greg Kostal, grain companies are still making money.
On paper it might look like they are making almost nothing above the canola futures price, but they are passing on their costs to customers.
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“China has been willing to pay the price,” Kostal said.
Chinese crushers are importing large amounts of North American oilseeds because the government decided to increase domestic stocks. That has given North American sellers a chance to make futures-plus sales. Kostal has heard of canola sales from in-store Vancouver being made at the futures price plus $40.
Canola Council of Canada chair Stewart Gilroy said he was glad to see the basis improve.
“It’s great for farmers right now,” said Gilroy, who grows canola near Camrose, Alta.
However, he said farmers would also have benefited if the futures price had moved up instead of the basis narrowing.
“The market isn’t going up, so the only way for the grain companies to get canola into the system is to lower basis and get it to Vancouver and get it on the ships.”
Kostal said the reduction of canola stocks should also benefit growers.
“This is a fabulous story because of our monstrous crop. We’re going to get rid of a chunk of it that we otherwise would have been stuck with or would have sold for a lower price later.”
Fortunately, the rail system has operated efficiently, allowing canola to flow to port.
However, an American analyst thinks demand might soon slacken.
Mike Krueger of the Money Farm in Fargo, North Dakota, said the Chinese will likely start diversifying their sources.
“Typically from this period forward they would shift their buying from North America to South America,” he said.
“We have not seen that shift yet.”
However, production problems with Argentina’s soybean crop and logistical blockages in Brazil might keep the focus on U.S. soybeans and Canadian canola, Krueger said.
