Basis levels keep Prairie canola cash bids strong

Strong basis levels at grain elevators across Western Canada have helped to keep cash prices for canola strong, despite falling futures prices.

"Even though there’s been some weakness in the futures market, the basis levels have been tremendous, which has kept the No. 1 Canada canola bids toward that $14 a bushel range, which to us is an exceptional price," said Errol Anderson, president of ProMarket Communications in Calgary.

Basis levels have been strong because farmers have been slow sellers, and crushers have had to increase their levels to entice them to sell and keep the flow going.

Farmers are most likely going to continue to hold off on selling until the new tax year, which starts Jan. 1, 2013, Anderson said.

But crushers will only be able to offer strong basis levels and face negative margins for so long.

"The crushers can’t take losses forever, so once they have some sort of flow of product into the system in the New Year, it’s quite conceivable that the basis levels start to come back down," Anderson said.

As western Canadian basis levels move lower, cash prices for canola will most likely follow along in the New Year.

Some of the outside factors putting downward pressure on canola prices are weakness in the canola futures market, soft global oilseed markets and expectations for a record large soybean crop in South America.

"South American weather is just about perfect, and they’ve got a really good crop coming," Anderson said. "So, we do have ultimate pressure on the oilseeds but it may be a few months from now."

Anderson noted canola cash prices have already come off their initial summer highs by about $1/bu., and could lose another $1/bu. by the spring of 2013.

"Supplies are tight, but the catch is the whole global market is just coming down a step and canola can command a premium but it can’t fight off a global market," he said.

— Terryn Shiells writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

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