WINNIPEG — The startling jump in old-crop canola futures over two days of trading was the talk of the Winnipeg grain trade last week.
Traders seemed stumped as to why it was happening and where prices would go next.
“The next technical barrier is $720,” said XCAN’s Keith Ferley. “This is uncharted territory.”
As for cause, speculation in the trade ranged from a simple need for seed to a “Ferruzzi squeeze” — a reference to a U.S. soybean company accused of trying to manipulate the Chicago Board of Trade futures market several years ago.
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In that situation, one company controlled much of the deliverable supplies, in addition to being long in the futures market. Short contract holders complained to regulatory officials they were being held for ransom. In a highly unusual move, the CBOT moved in and forced Ferruzzi to liquidate one side of its position in the marketplace.
Some in the trade say a shortage of delivery capacity is creating a similar situation at the WCE canola markets. Two companies, Cargill Ltd. and AgPro Grain, own all the interior delivery terminals listed on the WCE canola contract.
Their systems are plugged.
“There is no way line companies, or whoever is short (in) the market, can get enough product into a deliverable position to deliver against those shorts,” said one market analyst.
Others pooh-poohed the suggestion of a deliberate squeeze, saying it is pure demand combined with Canada’s transportation logjam that is driving the market.
WCE president Fred Siemens said no system of terminals can always take 100 percent of what people want to deliver, especially when prices are rising.
While not ruling out a closer examination of the situation, Siemens said the true test of whether the market is functioning properly is whether the futures market reflects the cash trade.
“If there are still people willing to buy out there at that price, then the market is doing what it is supposed to do,” Siemens said.
Elevator agents contacted at two points in southern Manitoba quoted street prices that rose in tandem with the futures markets increases.
As of Monday, they were paying $10.22 and $10.25 per bushel net to the farmers at their locations. But despite the highest prices in recent memory, they were only drawing “odds and ends” into the system.
That means either there is little seed left to be had, or the people who still have canola are waiting for the market to hit $20.
