Canola Spread

[ado089]

The Mar-May canola spread has been quite narrow the last couple of weeks, $2-3. Does anyone think it's wise to sign a Mar basis contract to get it gone relatively early and taking the role right now in hopes of the spread widening?

[charliep]

Your risk factor (pain and reward) going into the May contract is the South American soybean crop and the acreage war between US corn and soybeans in 2011. I like the idea of using slower winter deliveries (or perhaps better the need to keep canola moving into the system) to price out ahead of March but I won't pretend to know what will happen this spring. Suspect there will be carry into new crop (caveat being South America). May also be a year to look at call purchases at appropriate times this spring to replace old crop.

[charliep]

Know it is canola but would include the implications of $6/bu corn and having its end of 2010/11 carryover under a billion bu. We seem to oblivious of that fact in western Canada (not sure why) but this is a major factor that will impact markets over the coming year.

[ado089]

Depending on SA crop reports I would still likely price the contract by mid Feb to manage the downside of a good SA bean crop. I just feel that the spread is artificialy low due to the uncertanty of the current crop production levels and that a guy could probably catch an extra $6-10/mt once the facts are known and the spread returns to a more typical level.

[charliep]

So you are thinking about selling cash off the March and buying May futures?

Strategy looks interesting. Others thoughts?

[ado089]

Not quite, it's more of a basis play. Lock the Mar basis, take the role imediatley for a low fee because of the narrow spread. Sit back and wait for the spread to get wider then price the futures before the SA crop comes off.

[dirtgirl]

I've been looking at those spreads too and also wondering if I could make them work. But then I can never quite figure out how to do it! Going to use put options to make a floor and then sell into strength off the July futures. Am also thinking about buying calls to replace old crop. Not really when to do the calls though. Any thoughts?

[crusher]

You're not going to make much on playing that spread, might gain a couple of bucks. The real deal was a couple of months ago when July 11, Nov 10 had an inverse of $10. That spread hit $20 last week. See you in Hawaii.

[ry0972]

I have just been buying/selling the canola and bean futures. There is not much volume (if any ) in the canola options. Sold 1/3 of production off combine and replaced with 3X jan futures. locked in a -15 Nov basis on remaining 2/3. Should have a couple thousand bushels left in bin bottoms to outright gamble with. Rest will be gone by mid Nov so won't have to babysit, push snow, drag trucks through mud, -40 cold, or have it all heat!!!. All going direct to crusher picked up at bin for better/higher price than delivering to any local terminals.

[charliep]

Off the topic canola spread topic but a day like today highlights how interesting things are going ahead. Volatility will be the name of the game over the next winter. Looking forward to it.

[charliep]

[URL="http://farms.com/FarmsPages/Markets/tabid/214/Default.aspx?&page=chart&sym=RSX10"]november canola[/URL]

[Hopperbin]

bunge just increased the street basis to 45 bucks today.

[Hopperbin]

Because farmers like rye and hanmers from Govan Sask had 50 bushel canola this year. No brainer to sell now if had that crop.