Markets

[LWeber]

Plus 85 is $16.05 a bushel. That is 22 dollars higher
Than I/S vancouver.

[jdepape]

No one will pay 85 over futures when they could
just buy futures and take delivery. Worst possible
case for say ADM in Lloydminster is to take
delivery of futures and get it in southern Manitoba.
From there is might cost, what, $35 to get it to
Lloyd - makes 35 over pretty much the cap on
basis at Lloyd. I could be wrong on the freight
from MB to Lloyd, but I really doubt it would be as
much as $85.

Highest basis they should ever pay is equal to the
cost of shipping it in from the worst possible
futures delivery point.

[mbratrud]

FYI Southern Manitoba to Lloyd would be more like $45/ MT. Weyburn to Yorkton is $25/MT Freight is nasty. Fuel is nasty.

[jdepape]

Thanks Mark.
So theoretical max basis in Lloyd could be around
45 over. Anything over that would make taking
delivery of futures and shipping it up to Lloyd
cheaper.

[Burbert]

Canolie on Comedian frames is long f'n
gone. Bin sweepouts are all that remain
unless Comedian framers have become
excentric to the 9th degree over this
long, long, long, Winter eh!
fharperandritz

[Kodiak]

Yorkton/Harrowby crushers have been around $40 over July. $40 freight on deliveries against futures would bring it in from about 300 miles out, but basis is positive everywhere - so that won't work. Lloyd is going to have a tough time getting anything to get past Yorkton. Basis can get much stronger than $45. And at some point the inverse just gets stonger too as buyers find that deliveries against futures is unattractive because would-be hedgers sell into a strong cash market.

At the present time, old crop cash prices are around $120/MT higher than new crop. Needless to say, the market doesn't want anyone to carry any old crop into to the new crop.

Some buyers will roll July contacts to November on unpriced basis-only deliveries. Summer weather and new market fundamentals will make whether that option pays an open question for a while. Nov could gain on July if new crop conditions are not good. A producer could do very well locking in a hot July basis and rolling to November. Time will tell.

[jdepape]

Kodiak:
I need some clarification.

You say Yorkton/Harrowby crushers have been around $40 over. I track these guys daily online and the best has been 36 over by LDM (just recently).
Harrowby's best price so far has been 28 over.

Is the 40 over you mention a negotiated basis as opposed to a posted bid? Or was it when the bid was 17 over the May and the May/July was 23 over?

Don't understand the connection you make between futures deliveries and positive basis everywhere - "so that won't work".

When you take delivery, the cash basis doesn't factor into it. I think what you may be saying is - who will deliver when the cash price is higher? Who will pay 10 over futures just to sell it (deliver) at futures price?

You'd be right that that wouldn't be economic, but that's the whole point. We are getting to the point where futures delivery is more economic than paying a higher basis. So the long stands on delivery. But who is going to MAKE delivery? As it stands right now, no one. So the shorts in the market will have no choice but to buy in their short positions. But the longs may very well say, sorry, but I'm not selling because I want/need the physical canola.

All this leads to fireworks in the July. Will basis increase? Not likely - in another thread guys were talking about what price they need to clean out their bins. They may get it from futures.

You say Lloyd is going to have a tough time getting anything past Yorkton. Not sure what you mean - if Lloyd stands for delivery and someone gives it to them in southern Manitoba (their worst possible case), there's nothing Yorkton can do about it.

Why do you think basis can get much stronger than 45 over (at Lloyd)? you add "at some point the inverse just gets stronger too as buyers find that deliveries against futures is unattractive because would-be hedgers sell into a strong cash market". I'm unclear what you mean here - it seems to contradict your strong basis argument. If hedgers sell into a strong cash market, this would make futures delivery unattractive only if the basis they were selling remains below "futures delivery equivalent", which is another way of saying weaker basis, not stronger.

If my "cost" of taking delivery of futures as a source of canola for my plant is $45, why would I set my basis "much stronger"? Why would I go to say 80 over when I can get it so much cheaper by taking delivery?

Maybe I'm missing something.....

I won't comment about rolling basis contracts except to say sometimes it works, sometimes it doesn't. If a buyer does it, it is in his favour to do it.

When you say Nov could gain on July, do mean it could go to a carry or just narrow in the inverse? I doubt very strongly that we will be going to a July/Nov carry.

[Kodiak]

John. You make the point much clearer than I. Yes, there is potential for fireworks in the July futures. No one is going to deliver against futures when cash prices are higher virtually everywhere-and likely to remain so for the next 90-100 days. Which is in part why I said Lloyd can't get any canola past the crushers in Eastern Sask. They won't/can't let it happen. Their bids would have to be $40 less than Lloyd (maybe that explains $85 over at Lloyd?), and futures deliveries are uneconomic.

And oh yes, the $40 over is for July delivery. Sorry. If I were a betting man, I'd say that will get stronger before it gets weaker, because of the numbers in the previous paragraph! Market dynamics at work.

One more thing. This opinion/analysis is worth exactly what you paid for it;-)

[charliep]

Just curious how much any crusher or exporter will be
using futures in old crop. I would be back to back
purchases from farmers with my canola oil/meal sales
or exports. Futures would only be on uncovered
farmer purchases or product/canola seed sales and
be at a minimum. I suspect the real play has been in
managing the risk around cash crush margins for
domestic processors. Tight carryovers realities have
been factor in the market ever since last fall and
canola will have been managing their procurement
/sales programs accordingly.

New crop likely has a more open risk position for
crushers/exporters. Your play here I think is basis.

[Oliver88]

With seeding approaching in the next 3 weeks I
wonder how high the July futures will have to
move to make it worthwhile to move canola that
wasn't already contracted?

[Kodiak]

I agree Charlie. Futures delivery is not going to happen in July IMHO. Strong basis/cash markets will prevent it from happening. July shorts will have to ease themselves out of their positions, or the fireworks Errol mentions will occur.

Unless of course I'm wrong, and basis collapses. Could we see a reverse crush? Stranger things have happened.