chuckChuck - afraid you can't say this isn't about the CWB - because it is.
Canola prices to farmers are pushed lower by poor cash flow from CWB grains. This is not some theory I've cooked up - it's a reality shared by many, many farmers who sell canola for cash flow - and keep selling regardless of the price. The reaction by buyers (including crushers) to this tsunami of canola coming into the system is to lower the price (widen the basis). This has nothing to do with oil and meal prices, so obviously the crush margins "benefit" from this.
Once cash flow is taken care of, farmers tend to just look at the flat price of canola. What they need to do is consider spreads more in their marketing strategies. This will come as they now have wheat to do the same with. Spreads will give incentives to sell wheat or canola - and there will be times when the arrow points to wheat, at which time canola will stay in the bin; this will help tighten up the basis (and crush margins).
Another factor is that storage rates on canola futures are not enough to "compensate" for the full opportunity cost of storing canola. Most primary elevator operators handle both wheat and canola - futures spreads are a market mechanism to pay to store grain. The mistake most people make when looking at this is to simply compare "earning the carry" in futures to earning elevations from handling canola. The full story is that the elevators also look at what they need in order to handle wheat. They compare holding canola in their elevator at full carry to CWB wheat elevations and cleaning etc.
Since the storage rates will push the spreads only so far (full carry), the rest of the carry economics equation is pushed into the basis. For example, if the Nov/Jan spread is $8.00 at full carry, an elevator operator may say that's not enough to compensate for a loss of handling CWB wheat (because his space is taken up with canola) - he may need $20 to carry inventory (and compensate for lost CWB grain earnings) and so an additional $12 goes into the basis. Large CWB elevation tariffs lead to large spreads and wider canola basis levels.
Crushers don't handle wheat but they will set their prices competitively - so their bids also widen.
If you don't believe me, talk to the crushers and ask them what they think the CWB change will do to their margins. They will say (have said) crush margins will suffer (get smaller).
Getting rid of the single desk means more competition and all the good things that come with it. Period.
Canola prices to farmers are pushed lower by poor cash flow from CWB grains. This is not some theory I've cooked up - it's a reality shared by many, many farmers who sell canola for cash flow - and keep selling regardless of the price. The reaction by buyers (including crushers) to this tsunami of canola coming into the system is to lower the price (widen the basis). This has nothing to do with oil and meal prices, so obviously the crush margins "benefit" from this.
Once cash flow is taken care of, farmers tend to just look at the flat price of canola. What they need to do is consider spreads more in their marketing strategies. This will come as they now have wheat to do the same with. Spreads will give incentives to sell wheat or canola - and there will be times when the arrow points to wheat, at which time canola will stay in the bin; this will help tighten up the basis (and crush margins).
Another factor is that storage rates on canola futures are not enough to "compensate" for the full opportunity cost of storing canola. Most primary elevator operators handle both wheat and canola - futures spreads are a market mechanism to pay to store grain. The mistake most people make when looking at this is to simply compare "earning the carry" in futures to earning elevations from handling canola. The full story is that the elevators also look at what they need in order to handle wheat. They compare holding canola in their elevator at full carry to CWB wheat elevations and cleaning etc.
Since the storage rates will push the spreads only so far (full carry), the rest of the carry economics equation is pushed into the basis. For example, if the Nov/Jan spread is $8.00 at full carry, an elevator operator may say that's not enough to compensate for a loss of handling CWB wheat (because his space is taken up with canola) - he may need $20 to carry inventory (and compensate for lost CWB grain earnings) and so an additional $12 goes into the basis. Large CWB elevation tariffs lead to large spreads and wider canola basis levels.
Crushers don't handle wheat but they will set their prices competitively - so their bids also widen.
If you don't believe me, talk to the crushers and ask them what they think the CWB change will do to their margins. They will say (have said) crush margins will suffer (get smaller).
Getting rid of the single desk means more competition and all the good things that come with it. Period.
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