Canola Technicals

[bucket]

I think I know the answer but it's worth putting out there.

[farmaholic]

Thank you for your insight Errol.
Mar $430 is $10.50 but that isn't alot of time and I "guess"(because that's all this is) if it were to crash, it could recover buy late summer?

So that give you the right to sell canola at $430 whats with the basis? (excuse my ignorance-is basis applied to that futures price when the option is exercised?)

When in March would that option expire?

Thanks in advance Errol.


Cotton, World issues?

[charliep]

I agree with you Errol. Realizing I am looking at lowest freight rate Alberta locations, there are at least a couple of companies that are close to $9.90/bu for March delivery.

[ado089]

Short dated bear put spreads can be a cheap way to buy a look at the future.

[farmaholic]

This beast(market) is getting fed a steady diet and not hungry.

[jdepape]

Technically should be watching the Mar - the Jan is pretty well done from a cash perspective. Most buyers are bidding off the March now.

I concur that we are technically getting close to resistance - both cash and futures.

Sorry Errol, but we don't see eye-to-eye on the carry/storage question. To your question "who cares?" my response is everyone should.

Comparing "global market risk" to "any canola carry move" misses the point about carry. Acting on one does not preclude any strategy on the other. Taking advantage of carry opportunities in the market does absolutely nothing to interfere with flat price strategies. It's like comparing "global market risk" to "basis risk" - two different markets.

IF you like the futures price, sell it. The "carry" question is only relevant concerning WHEN you want to deliver. (A carry in the market is NEVER telling you to wait for higher flat prices.)

Here's where spreads (carry) come into it: assuming the futures sale you make is a hedge, best to sell the futures month that will be most relevant to your physical delivery. If there is a decent carry, the deferred futures months should be sold. OR - if you have a strong opinion on the market inverting, also sell the deferreds.

Basis is also a carry question. With the futures inverse right now, buyers are stretching out basis spreads (the spread between basis levels for different delivery windows). Two weeks ago the average May basis was about $12 better than spot. Now its about $17.

In other words, where there used to be a $12 advantage to May delivery, now its a $17 advantage (carry) in basis only. It may not sound like a lot, but its an important market signal.

With futures spread out to July at about even money, all the carry is in the basis.

These cash canola markets are - IMHO - just plain weird right now. If I were a short-hedger right now and wanted to get some coverage, I might be inclined to short Nov15 futures as my hedge. Yes, it's new crop and you're hedging old crop but at only $3 below the July, its a small inverse and my opinion is that it will only invert more. (Meaning the Nov should drop in relation to old crop prices - and that's a good thing if using the Nov as your hedge.) Your risk is that the Nov will gain on the July and go to a carry - I can't see anything in the market that would make that happen.

On basis, I don't like nearby basis - Dec, Jan, Feb delivery. Seems the trade is signalling they are pretty comfortable with what they have in the system and to come. Further out it looks much better but IMHO should get better over time.

I know a lot of this is off the topic of canola technicals, but timing of delivery is an important factor in hedging decisions. If we're just talking about selling futures as a trade, its a bit different - but spreads and carry should still come into it.

DYODD

[Kihei]

Some locations only 5$ better basis spot to May in SE Sask