WINNIPEG — ‘Tis the season to be combining … and watching those canola basis levels get wider and wider.
Basis levels, those stretchy grey areas between what the futures price says a commodity is worth at a future time, and the money a farmer pockets when he sells, are pushing $60 a tonne these days.
“There’s a lot of canola out there, and there has to be some way of allocating how it gets into the handling system,” said John Duvenaud of Wild Oats Market Advisory Services.
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Basis levels normally widen this time of year, but this year commercial buyers seem to be locking in some extra risk protection. The cash market has been remarkably ambivalent to futures market conniptions during the transition between the old crop and new.
Market observers say the limit up, limit down futures manoeuvres reflect a market that is reacting to just about anything –Êthreats of frost, damage due to bertha armyworm infestations, lack of farmer selling, too much farmer selling, investment funds and expectations that the transportation system will be constrained — if not jammedÊ– again this winter.
While the market rallied under crusher interest and lack of farmer selling early in August, it tumbled the next week under pressure from farmers anxious to price their incoming crop and buyers backing off, said Keith Ferley, an analyst with Pool Commodity Trading Ltd.
The fundamentals are a little more straightforward. Traders expect canola to be plentiful. Although prices will be lower than last year, they will be propped up by strong demand. European bookings are already running slightly ahead of trade expectations.
Nearby new-crop canola prices could slip to the $320 to $340 range this fall, but should pick up over winter, Ferley said.
But the crop will have to compete for handling capacity.”We’re looking at 30 million tonnes of the major six grains and then there’s peas and lentils,” said Charlie Pearson, an analyst with Growers Marketing Services.
Pearson said after last year’s experience with a congested system, companies will be more cautious when adjusting basis levels.
“Probably the biggest thing (a farmer) can do for this year is separate his pricing decisions from his basis decisions,” Pearson said.
If a good basis level comes along, a farmer should consider locking that in and then he can “ride the market” until a better price comes along.
