Canola v.s beans disconnect

[mcfarms]

I am rather perturbed about the great disconnect between beans and canola it used to be that canola traded at a premium to beans is this coming to an end. Todays July Beans closed at 608.50 US whereas Canola closed at 6.35 CAN. again July Winnipeg futures. At todays exchnage rate thats approx. 5.16 US.a bushel.
Now I know this rally has been weather driven and fanned by speculation but where historically should we be seeing Winnipeg Canola futures at tonight?? Is it an oil content issue or is canola becoming less attractive to buyers??

[mcfarms]

HAte to answer myself but after I wrote this I went out again to check on cows and calving and was thinking about this rally, does the way this rally is somewhat ignoring Canola indicate that it truly a spec drivin rally and is ignoring the underlying fundamentals of a large supply of stocks no matter what we have to chew through, I'm thinking it just might.

P.S Charlie the basis at Pioneer Carseland for march off may was 5 over this aft. last week today it was 10 under, .34 cents in basis alone wipes out alot of the upside move. I'm further convinced in my theory that basis is as important to profitable Canola sales as futures.

[mcfarms]

oops I got the basis numbers backwards they were 5 over last week and are now 10 under, same thing but.

[Incognito]

http://wce.ca/marketinfo/market_info_index.asp?section=crush

[Incognito]

http://www.cbot.com/cbot/pub/static/files/bo_rapsunpalm00.gif

[wd9]

mcfarms:Is it an oil content issue or is canola becoming less attractive to buyers??

One of the many reasons is non parity of tarriffs between canola and soy internationally. It costs canola producers around $30 to $50 per acre or averaging 15% by value above soy. For example China: Canola seed 9% and soy 3%. Korea: Canola Oil 30% Soy 8%, India Canola oil 85% Soy 45%, Thailand 27% and 7%....

Have a look at the articles on trade in the last 3 Canola Digests and the 4th yet to arrive by Barb Isman. Very informative and not in trade-speak.

Yah, we got screwed last round of WTO negotiations. The canola industry is not letting trade be forgotten this time around as last time we got what we asked for - nothing.

[mcfarms]

Incognito
Thanks for the chart I asked a fellow I spoke to this afternoon for something much the same, however then if I read this chart right(and lord knows I'm probaly reading it backwards) Canola oil is trading at an 120a tonne premium to bean oil or is it flipped and thats a 120 discount. And as far as the crush margin chart I've looked at it before, what is considered a "healthy" margin for all those involved. I understand the tariff issues real well and yes maybe CCGA didn't do their job fully in regards to Canadas position(not that it matters what canada wants fleas on dogs just get flea powder and we're the fleas) at the last round of the WTO.
I guess another underlying question is should we be pushing for funding into research into short season soybeans in western Canada? Besides southern manitoba where some of the varieties are already.

[TOM4CWB]

mcfarms;

2002 was a interesting year for the Canola oil market.

Just like with CWRS wheat, there are premium markets, and there are generic price sensitive veg oil markets.

With a more normal supply for the edible oil market, that is not shorting veg oil supply in 2004-05, we are simply saturating the oil market... with a resulting averaging down of Canola oil prices by supplying these edible oil/generic veg oil markets.

Simple supply and demand fundementals.

[mcfarms]

Tom and others though I often agree with you this morning I still stand behind my assertion that there has been a disconnect of late between Canola and Beans and though the canola has followed the bean rally up it hasn't tracked it as fully as it should have. Heres an interesting article this morning
http://news.tradingcharts.com/futures/2/9/64094392.html

I kinda think everyones right in their own way , but the underlying fact is what I said in the first thread canola hasn't fully participated in the bean rally. Likely because a good portion of the bean rally is technical and speculative and not fundamental driven.
Hopefully the spread will move some business out of beans and into Canola and help us reduce this carryout.
This is the type of year where we need to be aware as basis levels as much as anything. would it be a good thing to have an ongoing basis thread in here for canola?? I find that I have to phone at least 5 companies a week to stay on top of the basis levels as they have been so variable the last couple years. And though it's their job to answer the phone I do have to admit I'm sure they get tired of me phoning on a weekly and sometimes like the last while daily basis as things have been so fluid.

Talked to one friend last night and he said he talked to agpro before lunch and the basis was one over when he phoned back at 3 to book a load it had moved to 10 under .25 cents in 3 hours effectively.

How do we use agriville to be a better "real time" basis tracker.
And to compound all this the basis is again variable from area to area but we should be able to develop a good understanding of which companies are in the market and which aren't . That would be a good use for this site I feel.
Thanks

[Incognito]

This would be a good time for Chaffmeister to defend the WCE canola futures contract.

Or better yet, the wild basis swings that have been occuring and the disconnect from cash to futures and cash to CIF canola. $20.00 basis swings in ONE day are now the new norm.
As soon as the futures close on an up day, the would be cash gain from a futures increase is gone. What gives. Contract flaw? Price Discovery?

How does one keep the crushers from gouging? Are $100.00 crush margins ok?

When does price discovery come into play? Or has the WCE, in its quest for volume, created a playground for funds and speculators? That's not being disrespectful to the WCE. It's happening at them all.

Basis swings in soybeans are happening as well. Read some of the posts on agrculture.com.

The other 3 (CBOT, KCBOT and MGE)have created an environment for record volume. At what point do we see that happening in Canada?

[mcfarms]

Great thoughts incognito.

I (and yes I'm ashamed to admit I still have some canola unpriced) have the last couple years developed a bit of a strategy where I try and do my basis first as far out as possible waiting until the basis levels reach near or above zero(southern Alberta) on what ever portion of the old crop I still have and wait for the futures to give me what I have targeted either by setting GPO's or watching the trends as close as I can. This way I can participate in a rally fully rather than watching up moves vanish in widening basis's. I do accept that if beans move but no one comes looking for Canola the basis level of course will widen. But it appears that we are more and more an a bean based world especially it appears to the hedge funds and minor traders that give the liquidity to the market. read tonight where wce is trying to get more "locals" back to the wce or short term traders because they lost enough during the switch to electronic.

At least I'm trying to understand what is moving the markets I still wonder what percentage of producers is even this interested.

[Incognito]

5% of farmers care what drives the market....scary thought.

[melvill]

One of the best ways to "value" canola is to chart soyoil in Cdn cents/pound against canola in $/tonne. You'd be surprised at how closely over time they have tracked. Reason is that canola is an oilseed and soybeans are a "meal seed" that produces some oil.

Remember, too, that starting in 1996 the canola futures moved from a Vancouver value to a Saskatoon value. That upset some of the "old time" ratios that we used to watch. Of course, maybe we shouldn't be paying a lot of attention to trends, etc., from that long ago.

[Lifer]

Incognito where do you get this 5% stat of farmers who care?

I believe all farmers care. They may not know what exactly they are doing, butt they still care. And yes I did say butt...

[Lifer]

To add another thought. What did we get in the last WTO talks. I believe it was what we asked for. Which apparently was nothing.

This time however lots of direction has been given to the chief WTO dude, aka our man Steve, who is a brilliant and effective negotiator armed with the needs and concerns of the Canadian Oilseed industry provided by the dedicated Canadian Canola Industry.

To quote The Who, "We won't be fooled again."