roll canola March basis or not?

[mcdon]

"basis is a price" no, it a component of a price, Determined by commercials, based off of futures price.

[farmaholic]

To me basis is an indicator. Futures plus or minus the commercial handlers fees.

Wide (large; negative) tells me they're not looking too hard.
Narrow (small; positive or a small negative) tells me they need the grain
Thus the disparity is prices with in the same Company through out the year(disregarding futures moves). Or between different Companies at the
same time.

Someone on here thought is wasn't important to know what all goes into determining basis and to only know what is a good and bad basis for your area. I don't know if I totally agree with that. Is it not good to know what the elevation fees are, the "discounted" unit train freight rates, terminal cleaning, weighing and inspection, and anything else they might throw in?

When basis goes to zero or positive, are they that offside that paying more than futures is economical, are futures even relevant to their actual selling price? Or kind of a dollar cost averaging thing to fill
orders? It's probably way deeper than it looks to me.

[jdepape]

If you want to split hairs, go ahead.
And yes, your description of how you get a final price is textbook. BUT -

Price is "determined" by supply and demand forces. Yes the buyer indicates his bid but if sellers don't satisfy him, he moves his basis (price) higher. And if he gets all he needs, he is apt to lower his price (basis).

I think we send the wrong message:

1. When we talk as if commercials have all the power - when farmers react to basis and spreads properly they have more market power than many give them credit for (including themselves).

2. When we talk about basis as a cost. It is a price (or component of price, if you insist) and reacts to market forces as a price so it makes ultimate sense to think and talk about it as a price.

As a merchant I recall people asking what our price was on something. The answer was typically something like "our price is 20 under".

Basis is a price - not a cost.

[farmaholic]

I guess what I was trying to get across in my last paragraph is just because a company sold canola 4 months in advance doesn't mean they sold it for the futures price 4 months out either. Thus the wiggle room?

John, are futures prices even relevant to companies selling prices? A guide, maybe?

[jdepape]

Futures are relevant to both buyers and sellers. A common mis-step is thinking that graincos buy from farmers at some basis and then sell that grain at futures price.

Right now, average canola basis in the prairies for spot delivery is about 30 under. Average price in Vancouver (track Vancouver - meaning the price before it goes through a terminal) is quoted as 40 over. Therefore the spread between the country and the port is about $70.

As you said, there are times when the country price is more like 10 over - when that happens, the Vancouver price is most likely in the area of 50 or 60 over.

Because of the way futures markets work, they remain relevant and the basis reflects more local pricing impacts. So using futures to hedge works to remove most of the price risk inherent in trading grain.

[mcdon]

My post re basis as a component of price wasn't meant to split hairs. There is obviously a wide range of grain marketing experience amongst readers and to depict basis as a "price"In could be confusing for those with limited experience. In my 35 years of grain marketing I have never heard of basis being referred to as a "price".
Simply put, basis is a component of farm gate price where,

Farm Gate Price = futures price - basis

In theory it is used by grain companies/end users to regulate the flow of inventory much the same way the CWB used quotas to regulate flow. Its effectiveness depends on a strong correlation between cash prices and futures. Where there is a poor correlation e.g. oats last year, basis levels become less effective as a tool for merchants.