Canola basis improving

[Hopperbin]

Seems the big bad grain companies can go from a 90 dollar basis to a 2 dollar basis in Humboldt, Sask. Actually a 4500% improvement over 6 months.
The CWB is killing us grain producers with their basis levels. The only ones benefiting from the CWB today is the grain companies. There are possible wheat shortages developing around the world and the CWB is telling us not to grow wheat.

[Jay-mo]

I hear there are some $ basis being offered by companies at Winkler, Mb.

[furrowtickler]

The canola basis in some locations in Alderta was a possitive $15 last week. There are vesels waiting for canola and most farmers are holding out for $10/bus. A chess game is in play.

[Jay-mo]

woops, add a "plus" symbol in front of the $.

[charliep]

apologize for being the boring numbers guy but you have a look at the grain statistics weekly.

http://www.grainscanada.gc.ca/statistics-statistiques/gsw-shg/2008-09/09gsw_shg30.pdf

As of Feb. 22 (week 30), there is 900,000 tonnes of canola in commercial storage. There was 1.3 mln tonnes in the commercial system a year ago.

Deliveries have amounted to 225,000 tonnes/week or 900,000 tonnes/month. Deliveries during the first 6 months of the crop year have amounted to 6.3 mln tonnes.

Exports and domestic crush combined have also amounted to about 225,000 tonnes/week or 900,000 tonnes/month. Exports and crush to date have amounted to 6.6 mln tonnes.

From above, there is only a months supply of canola in the system at any point in time this year. Implication is grain companies and crushers need to keep grain flowing to meet their sales commitments. this is a healthy thing for the whole industry.

You can do the comparison with other grains.

[charliep]

Should be 7 months crop year.

[charliep]

With apologies for telling a story (a sign of old age), I can't help but remember my time at a grain company.

The canola merchant comes into my office all looking bothered because he is short canola in Vancouver for a vessel. Can't remember futures but they were out in the country with aggressive basis levels (overs) and no grain coming up the driveway. Their question - Why weren't farmers delivering?

30 minutes later a farmer phones and asks why basis levels were so good. Given I worked the grain company, couldn't 100 % out and out say but I gave them a pretty road map as to why. Their last words on the telephone - If they want it that bad today, they will want it more in the next few days.

A week later, I see the canola merchant looking smug and as happy as I had seen them. The boat got filled and enough canola came into the system to cover the companies needs over the next few weeks. They were on easy street with basis levels widened right out.

The farmer phoned that morning to complain about company basis and ask why I didn't tell him that they would widen. I also remember that futures collapsed in the meantime.

Set your canola price targets and stick to them. If you like basis but not futures, remember you can replace on dips by getting long futures/calls (this is not a recommendation - I like cash in the bank these days).

[Hopperbin]

Charlie you no need to apologies. You fill in a lot of blanks for me at times and other times I just draw a blank LOL.
Furrow you say vessels are waiting to load canola, are they actually waiting to load canola or are they there to anchor waiting for just anything?
Just want to remind about the CWB basis question as to why is it not narrowing on flex pro or what ever the hell program they have out now.

[Hopperbin]

Charlie an interesting point on the Canola basis is I was able to contract the special basis only, compared to one week ago I was not able to contract the special basis of the time unless I priced the futures price also. With your grain business experience what does that tell you? I believe it means something. Although these are extra ordinary times according to basis I believe we are finally back at a basis that the futures market was designed for.

[charliep]

When a company puts you in a situation of basis and futures, it is likely that
trying to fill a spot sale that they can match their actual business (cash and
basis) against the price they offer you as a farmer. It may also be a
combination of factors that allow the grain company to offer you a price that
is acceptable. Example, $10/bu is a price grain companies know is a farmers
target so they will put it out for a period of time. All this is easy - no muss
or fuss with futures when you back to back sales.

When a grain company offers a basis contract only, this often a time when
futures have dipped such that the price being offered is unacceptable to
most farmers but the grain company still wants your delivery commitment.
They can lock in the futures side to capture the price but leave you the
alternative to enjoy the benefits or endure the pain of changes in futures.
Will leave the conversation whether this is good or bad.

Will also note that canola basis is about attracting delivery and smoothing
the flow of crop into the system. Weak basis equals stop delivering. Strong
basis is a signal the grain want canola now.

CWB producer pricing option basis has absolutely nothing to do with delivery
- the delivery signal is contracts and contract calls combined with whether
nearby elevators have space and maybe some trucking premiums. The CWB
basis is locking in a payment futures relationship with the PRO that the CWB
(with no market competition) sets for farmers and allows the CWB manage
risk around the pricing pools plus costs including re-financing the
contingency fund.