March Canola

[Oilking]

Futures really went down today, especially March, went down $14.30 per tonne. Is this panic selling or what's the reason ? Anyone?

[charliep]

In the delivery period where should be down to those that are willing to take or provide physical canola on the contract. Will be lots of volatility ahead. Interesting that the March/May inverse has narrowed. May has slowly been pulled up to March values.

[farming101]

Charlie, can you read anything into the fact that when the January contract was in delivery the price increased? Now that March is close to delivery the price is taking a nosedive?

[charliep]

A learning experience for me as well. I would watch for follow through tomorrow - a trend or a one day wonder has someone endures pain. Would also watch open interest/how grain companies are roling futures months. One day is not a good signal.

[farming101]

No commitment of traders report. That would help. It would seem somebody long the March wanted out before it goes into delivery next week and were willing to take less to retire their position.
No limits when in delivery if I'm not mistaken.

[charliep]

Just us talking about but I am really finding the movement in canola spreads interesting. At this point today, markets are moving to take some of the inverse out canola futures.

What I know.

Canola carryover on July 31 likely 1.5 MMT ish. Not really tight but worth watching given a stocks use of just under 10 % or one months disappearance if you prefer.

Will let other fight about acres. From a disappearance side, western Canada has customers for 16 MMT plus - particularly with Camrose Cargill plant coming on line. That is a 35 bu/acre prairie canola crop on 20 million acres.

[charliep]

Here is the ICE Canada daily report to help everyone monitor open interest. Lots of rolling positions going on yesterday with March open interest down 5,500 contracts.

[URL="https://www.theice.com/futures-canada/market-resources"]ICE daily[/URL]

[charliep]

Oops.

Look for reports, end of day day reports, canola, February 25.

[charliep]

I note also 1000 plus a EFS (Exchange of futures swap). Not 100 % sure what these are but also impacted March open interest.

[mcdon]

Collapse of the march/may spread the result of long (probably fund) attempting to roll after short (elevator cos.) have reconciled their March delivery intentions. Apparently shorts willing to deliver against a relatively large open interest. A "cat and mouse" game at this point. Does not bode well for deferred spreads.Should not really come as a surprise given the large fund long position.

[jdepape]

Canola spreads have been inverted this crop year until now - in spite of supply. A direct result of delivery terms indicating the short that delivers against futures (the elevator) has to provide the railcars to the shipper (they come out of their car allocation). In times of poor rail service (like last year and this ytd), graincos are reluctant to deliver because they don't want to give up their railcars.

Nov/Jan was at $14 OVER on first notice day. Jan/Mar was at $12.50 OVER on first notice day.

Any long fund would have done very well at the expense of the shorts (elevators) rolling through those spreads.

Now we are at/near first notice day on the Mar and Mar/May collapses from $6.80 OVER a week ago to $8.40 UNDER yesterday - mostly in the last two days.

What has changed from previous expiries?

The futures rally has made cash prices attractive - even with basis getting lowered every time futures move higher - generating healthy farm deliveries. Now, the system is choking on canola - the highest visible stocks all year.

I believe a grainco has finally said "enough is enough" and will not roll his short position forward at a loss though an inverse and will deliver if need be - even at the risk of having to give up railcars.

[farming101]

So, if there are going to be deliveries against the March, any guesses where prices will go before expiry? Could get interesting. Or not.

[jdepape]

When it comes to futures delivery, its not so much price that matters - basis and spreads are the key.

Even with the potential delivery looming over the March, canola is up $7.10 in the Mar as I write this. But the May is up $7.90. And average basis is about 30 under.