But just how committed are the traders shown in those trading activity reports? When you look at what traders can also do in the cash, over-the-counter and physical markets associated with those futures contracts, it’s difficult to say for sure.

This is especially true of the currency markets given the vast size of the cash and over-the-counter (OTC) market across the global banking system. This makes tracking and analyzing Canadian dollar futures activity even more challenging.

As a refresher on the subject, the CFTC publishes the COT reports to help the public understand market dynamics. They do so by categorizing the long and short positions of different market participants to help market participants understand who is doing what.

In general, the two most important classifications are large commercial hedgers or large speculators. When it comes to financial futures like the Canadian dollar, stock indexes or interest rates, compared to physical commodity futures like canola, wheat or cattle, the CFTC also provides a detailed Traders in Financial Futures report with the following four subcategories:

• Dealer/intermediary;
• Asset manager/institutional;
• Leveraged funds; and
• Other reportables.

Dealer/intermediary participants are what are typically described as the “sell side” of the market. Though they may not predominantly sell futures, they do design and sell various financial assets to clients. They tend to have matched books or offset their risk across markets and clients. Futures contracts are part of the pricing and balancing of risk associated with the products they sell and their activities. These include large banks (U.S. and non-U.S.) and dealers in securities, swaps and other derivatives.

The rest of the market comprises the “buy side,” which is divided into three separate categories:

Asset manager/institutional are institutional investors, including pension funds, endowments, insurance companies, mutual funds and those portfolio/investment managers whose clients are predominantly institutional.

Leveraged funds are typically hedge funds and various types of money managers, including registered commodity trading advisers (CTAs); registered commodity pool operators (CPOs) or unregistered funds identified by CFTC. The strategies may involve taking outright positions or arbitrage within and across markets. The traders may be engaged in managing and conducting proprietary futures trading and trading on behalf of speculative clients.

Other reportables are traders that are not placed into one of the first three categories. The traders in this category mostly are using markets to hedge business risk, whether that risk is related to foreign exchange, equities or interest rates. This category includes corporate treasuries, central banks, smaller banks, mortgage originators, credit unions and any other reportable traders not assigned to the other three categories.

Typically, when the big commercial entities like dealers and banks are long, the large funds are usually short, and vice versa. Think of the banks and dealers as the house in Vegas or a sports betting site; they don’t necessarily take an outright position but continually adjust the odds and payouts to balance their book while facilitating the wagers of others.

So if a lot of traders want to be long, the dealers take an opposite short position to accommodate those speculative trades. When a market gets too stretched to the long or short side, the dealers will take the offsetting position and look to profit from those trade flows.

The “funds,” defined as large investment managers, mutual funds and hedge funds, are often considered the big smart money. We often hear about the funds’ long or short futures positions being at record levels as a reason for the market to go higher or lower, respectively. But if we analyze those extreme futures positions over time, does it really show any insightful pattern worthwhile following?

Looking back at 20 years of CFTC COT data for the Canadian dollar, there have been about 20 significant scenarios of extreme long or short positions held by funds in the past 20 years, or about once per year.

Crunching this data shows that if you bought every time the funds had an extreme long position or then sold when funds were heavily short, you would have actually lost four cents on average on each of those trade signals. So I guess it is good to watch what the funds are doing, but not how you think or have been taught. In fact, it is better to do the opposite of what the funds are shown to be doing in the report.

Keep in mind though you don’t know what the funds are doing on the opposite side of their trading in the over-the-counter (OTC) market. If funds are long futures, they may be short in the OTC market and are just accommodating speculators or facilitating hedges to companies by providing liquidity to the system.

Another practical aspect to consider is that the OTC market is much larger than the exchange traded futures markets. For instance, based on Bank for International Settlements (BIS) data, there were US$4.25 trillion outstanding notional Canadian dollar currency positions at the end of 2018. This compares to only US$14.3 billion worth of outstanding Canadian dollar futures on the CME Group futures exchange at the end of 2018.

The Canadian dollar futures market represents only 0.33 per cent of the outstanding global market for Canadian dollar positions. Likewise, the daily trading turnover in the OTC market averaged US$260 billion in 2016. Meanwhile, CME Canadian dollar futures contracts were about US$5.5 billion, or only two per cent of the global trading volume.

While futures are transparent, regulated and efficient, they are often a small portion of the overall marketplace. If you are tracking the COT reports for insights into where the market may go, you have to keep this in mind. You don’t know what they are doing on the other side of their trading ledger in the cash and OTC derivatives markets.

Bottom line — I’ve researched this issue for other futures markets and the conclusion seems to be the same. The commercial players tend to be the ones with a bigger-picture outlook and longer-term view so their actions may better represent what’s truly going on in the marketplace.

Market efficiency has the view that all public information is properly discounted in markets and cannot be exploited. While that public information may be discounted, it doesn’t mean it is always done correctly. So, don’t invest too much time or capital in these reports since you don’t know what these traders may be doing on the other side in the cash or over-the-counter markets.

Estimates and projections contained herein are our own and are based on assumptions which we believe to be reasonable. Information presented herein, while obtained from sources we believe to be reliable, is not guaranteed either as to accuracy or completeness, nor in providing it does PI Financial Corp. assume any responsibility or liability.

The post Derwin: Dollar direction signals hard to decipher appeared first on Manitoba Co-operator.

Average Canada Western Red Spring (CWRS, 13.5 per cent protein) wheat prices were down $1-$2 per tonne, according to price quotes from a cross-section of delivery points compiled by PDQ (Price and Data Quotes). Average prices ranged from about $230 per tonne in northwestern Saskatchewan to as high as $258 in southern Alberta.

Quoted basis levels varied from location to location and ranged from $1 to $29 per tonne above the futures when using the grain company methodology of quoting the basis as the difference between U.S. dollar-denominated futures and Canadian dollar cash bids.

When accounting for currency exchange rates by adjusting Canadian prices to U.S. dollars, CWRS bids ranged from US$175 to US$196 per tonne. That would put the currency-adjusted basis levels at about US$33-$54 below the futures.

Looking at it the other way around, if the Minneapolis futures are converted to Canadian dollars, CWRS basis levels across Western Canada range from $43 to $71 below the futures.

Canada Prairie Spring Red (CPSR) wheat bids were weaker, dropping anywhere from $8 to $9 per tonne depending on the location. Prices ranged from $203 to $220 per tonne.

Average durum prices were lower, with bids ranging anywhere from $223 in northwestern Saskatchewan to $249 in southern Alberta, depending on the location.

The December spring wheat contract in Minneapolis, off of which most CWRS contracts Canada are based, was quoted Sept. 7 at US$5.70 per bushel, down 13.75 U.S. cents from the previous week.

Kansas City hard red winter wheat futures, traded in Chicago, are more closely linked to CPSR in Canada. The December K.C. wheat contract was quoted at US$5.1475 per bushel on Sept. 7, down 26.25 U.S. cents compared to the previous week.

The December Chicago Board of Trade soft wheat contract settled at US$5.1125 per bushel on Sept. 7, down by 23.75 U.S. cents on the week.

The Canadian dollar settled Sept. 7 at 75.96 U.S. cents, down by more than a cent on the week.

The post Dropping U.S. futures drag Prairie wheat bids lower appeared first on Manitoba Co-operator.

Average Canada Western Red Spring (CWRS, 13.5 per cent) wheat prices fell by $7-$11 per tonne across most of the Prairie provinces, according to price quotes from a cross-section of delivery points compiled by PDQ (Price and Data Quotes). Average prices ranged from about $224 per tonne in northwestern Saskatchewan to as high as $251 in northern Alberta.

Quoted basis varied from location to location but overall prices were $1-$28 per tonne above the futures when using the grain company methodology of quoting the basis as the difference between U.S. dollar-denominated futures and Canadian dollar cash bids.

When accounting for currency exchange rates by adjusting Canadian prices to U.S. dollars, CWRS bids ranged from US$176 to US$197 per tonne, which was down on a U.S. dollar basis on the week. That would put the currency-adjusted levels at about US$26-$47 below futures.

Looking at it the other way around, if the Minneapolis futures are converted to Canadian dollars, CWRS basis levels across Western Canada range from $33 to $60 below the futures.

Canada Prairie Spring Red (CPSR) wheat bids were down by $3-$8 per tonne, with prices ranging from $186 to $204.

Average durum prices fell, with prices dropping $1-$3 per tonne. Bids across Western Canada ranged from $236 to $261 per tonne.

The July spring wheat contract in Minneapolis, off of which most CWRS contracts Canada are based, was quoted April 20 at US$6.0575 per bushel, down 21 U.S. cents from the previous week.

Kansas City hard red winter wheat futures, traded in Chicago, are more closely linked to CPSR in Canada. The July K.C. wheat contract was quoted at US$5.02 per bushel on April 20, down by 13 U.S. cents compared to the previous week.

The July Chicago Board of Trade soft wheat contract settled at US$4.7725 on April 20, down 12 U.S. cents on the week.

The Canadian dollar settled April 20 at 78.57 U.S. cents, down 0.81 U.S. cents on the week.

The post U.S. futures fall, dragging on Prairie wheat bids appeared first on Manitoba Co-operator.

Depending on the location, average Canada Western Red Spring (CWRS, 13.5 per cent protein) wheat prices in Western Canada fell $4-$7, according to price quotes from a cross-section of delivery points compiled by PDQ (Price and Data Quotes). Average prices ranged from about $221 per tonne in western Manitoba to as high as $241 in parts of Alberta.

Quoted basis levels varied from location to location, but fell slightly to range from $1 below the futures to $19 per tonne above the futures when using the grain company methodology of quoting the basis as the difference between U.S. dollar-denominated futures and Canadian dollar cash bids.

When accounting for currency exchange rates by adjusting Canadian prices to U.S. dollars, CWRS bids ranged from US$179 to US$195 per tonne, which was down on a U.S. dollar basis on the week. That would put the currency-adjusted basis levels at about US$27-$43 below the futures.

Looking at it the other way around, if the Minneapolis futures are converted to Canadian dollars, CWRS basis levels across Western Canada range from $34 to $54 below the futures.

Canada Prairie Spring Red (CPSR) wheat bids were up $4-$7. Prices across the Prairies ranged from $185 per tonne in southwestern Saskatchewan to $205 per tonne in southern Alberta.

Average durum prices fell by $1 in most of Western Canada; bids ranged from about $232 to $272 per tonne. Most prices were around the $272 mark, while northwestern Saskatchewan was the outlier at $232.

The March spring wheat contract in Minneapolis, off of which most CWRS contracts Canada are based, was quoted Feb. 2 at US$6.0375 per bushel, down 10.75 U.S. cents from the previous week.

Kansas City hard red winter wheat futures, traded in Chicago, are more closely linked to CPSR in Canada. The March K.C. wheat contract was quoted at US$4.6325 per bushel on Feb. 2, up 20.25 U.S. cents compared to the previous week.

The March Chicago Board of Trade soft wheat contract settled at US$4.4675 on Feb. 2, up 5.75 U.S. cents on the week.

The Canadian dollar settled Feb. 2 at 80.78 U.S. cents, down by 0.38 of a cent compared to the previous week.

The post Wheat bids follow lead of U.S. futures appeared first on Manitoba Co-operator.

“Just about every day it’s been positive (on the Chicago Mercantile Exchange) and that’s what is holding the market probably together on the feeder cattle,” said Robin Hill with Heartland Livestock Services at Virden.

About 17,200 head were sold at the province’s eight major auction marts during the week, up by over 3,500 head from the previous week, when 13,694 were sold.

Feeder cattle prices rose anywhere from $1 to $20. Steers (800-900 lbs.) sold from $165 to as high as $223 per hundredweight. For heifers (800-900 lbs.) prices were slightly lower, with some going for as low as $135 to as high as $190/cwt.

On the slaughter market, prices varied, with some auction marts seeing increases while others saw decreases. Prices for mature bulls ranged across the province from $75 to $125.50/cwt.

The CME live cattle futures market reached its highest level in nearly three months on Oct. 26. Packers bid US$111/cwt for slaughter-ready cattle in the U.S. Plains, versus US$116 for asking prices.

In Canada, Hill said, this spells good news for cattle producers.

“If we ever see a big dive in (Chicago futures) on the feeders or the live fat cattle we could see a change in the feeder cattle fairly quickly,” he said.

In Virden this week Hill saw aggressive trade with a long front row of order buyers. Cattle mostly were sold to western and eastern feedlots.

“There’s not much interest in the south because our cattle in Canada are worth as much or more than their cattle are with the exchange rate,” Hill said.

As well, prices are up from this time last year. According to Hill, producers at Virden are getting 45 to 50 cents a pound more.

Volume is up as well. With bills coming due at the end of October and start of November, Hill said this week usually marks one of the busiest runs of the year. He estimated the auction mart is within 120 head of what was sold last year at this time.

Hill expects the next week to be busy as well, with the run starting to slow slightly after that.

Heading forward, he said, “volume is going to be the biggest issue for the next four weeks… the availability of trucks to haul the cattle from the auction barns to their next destination, that’s always a factor this time of year.”

The sale week also corresponded with Manitoba’s official Beef Week, which recognizes the contribution about 6,500 beef producers make to the provincial economy.

The post Rising Chicago futures support Manitoba values appeared first on Manitoba Co-operator.

Specs, usually hesitant to become buyers in such an oversupplied market, bought nearly one billion bushels of corn in the form of CBOT futures and options – equivalent to 200,000 contracts – between June 6 and June 16.

That buying among money managers reversed the 200,981-contract short position held as of May 30. By June 13, the net short had dwindled to 17,929 contracts and fund buying activity in the days after strongly suggested that the net short no longer existed by the end of last week.

During the 11-day buying rally, July corn futures peaked on June 8, a five per cent gain in price. By the end of last week – which is when the funds had presumably evened out their bets – the total gains amounted to only three per cent. Prices have fallen further since, as Tuesday’s $3.70 settle (all figures U.S. funds) was the lowest of the month.

This probably sets the record as the biggest fund buyback with the most pitiful price move, as gains were significantly less than those produced by the spring and early-summer short-covering rallies of the last two years.

In 2015, funds depleted a hefty short position within the last nine days of June, culminating in a 17 per cent jump in July futures. They did the same within nine days in mid-April 2016 for an 11 per cent gain in the July contract on increasingly unfavourable South American weather. The 2015 move was sparked initially by U.S. weather concerns and capped off with bullish government stocks and acreage reports on June 30.

Balance sheets from the previous two years show ample domestic corn supply relative to previous years, but apparently not as ample as this year given the stubbornness in the futures market.

Corn futures finally broke above the relentless 20-cent range earlier this month, spurring action on the commercial side of the market, including U.S. farmers who have been hoarding last year’s crop in hope of better prices. CBOT corn-trading volume broke records on June 7 with help from intense selling by commercial handlers, which pushed against price gains from speculative buying.

Data from the U.S. Commodity Futures Trading Commission suggests commercial corn hedgers had their third-biggest net sell-off in the week ended June 13, which suggests significant farmer selling. Not surprisingly, the top spots are occupied by weeks in April 2016 and June 2015.

Weather the only hope?

It has been exactly one year to the day since front-month corn futures traded above $4. With lots of old supply still sitting in bins throughout the Midwest, prices may struggle to notch gains comparable to years past unless U.S. weather genuinely takes a turn for the worse.

Weather thus far in the 2017 growing season has not been perfect, which has been reflected in lower crop ratings than in the previous three high-yielding years. Forecasts have been relatively benign this week, but the outlooks will become even more important in the next two months as pollination followed by grain fill occurs – more chance for volatility should they call for hot and dry stretches.

Even if July and August weather is not glaringly adverse, crop shortfalls that may have arisen amid the wet and cold spring will come to light as soon as the combines begin to roll in September, which could give a late-season boost to futures.

A similar situation arose in 2015 as disappointing early harvest results and a cut in expected production from the U.S. Department of Agriculture sparked a 12 per cent futures rally in the first half of September.

Monstrous output in Brazil will also offer pressure to corn prices as the ongoing harvest could touch 100 million tonnes. This is 50 per cent larger than last year’s drought-stricken crop, which carried the original April 2016 futures rally into mid-June with even bigger price gains.

In the past decade, funds were net short corn during July and August only twice. In 2013, the U.S. corn crop was on track to easily surpass the previous year’s disastrous harvest, and in 2016, the eventual record-large output appeared very likely by the midpoint of the summer under non-threatening weather conditions.

The post Corn sizzles, then fizzles appeared first on Manitoba Co-operator.

The weakness in crude oil and gold have contributed to the collapse of the loonie. Canada is a country rich in resources, so when the metal and energy markets drop, so goes the Canadian dollar.

This weakness may have come as a surprise to some people, but technical analysts were alerted to an impending downturn in July 2014, when a two-month reversal developed on the monthly nearby gold and crude oil futures charts. Since then gold has lost $300 an ounce and crude oil has slipped $70 per barrel. Subsequently, the Canadian dollar has dropped 22 cents U.S., as it continues to establish lower lows and lower highs within a downtrending channel. This is illustrated in the accompanying long-term chart.

Downtrending channel

In a downtrend, the market declines and then reacts, but quickly runs into overhead resistance where an increase in selling turns the market back down. This process, once set in motion, develops a momentum which strengthens the trend and makes it persist.

Market psychology

As a new downtrend begins to emerge, sell orders materialize, but many are at a limit price above the market. In the normal ebb and flow of the market some of this selling is satisfied when prices move up. However, a portion of the selling is not satisfied and when prices again begin to move down, some of these sellers jump in for fear of missing the move.

The balance of unfilled sell orders will continue to trail the market in hopes of catching a reaction. However, most of these sellers will gradually lower their offers as the market declines. Eventually, the decline will accelerate sharply when much of the patience of those waiting for a big break will have worn thin. This results in more selling being thrown into the market at the prevailing price level.

There is an old saying, “The trend is your friend.” When a trend can be identified and followed to its conclusion, it translates into opportunity.

A declining Canadian dollar impacts Canadian agricultural producers. A lower Canadian dollar makes it more expensive to import goods from the United States such as fertilizer, machinery, soybean meal and corn, but there are also some advantages of a lower dollar.

Canadian grain and livestock producers selling to companies in the United States and being paid in U.S. dollars can take advantage of a declining Canadian dollar by waiting to convert those greenbacks to the loonie when the Canadian dollar is lower.

A low Canadian dollar also serves to offset some of the weakness in U.S. grain and livestock futures markets pressured by the strong U.S. dollar. Some individuals are under the impression grain and oilseed prices are higher when the Canadian dollar is low. This is a myth!

Grain prices are higher when the U.S. dollar is low. A weak U.S. dollar makes U.S. exports more competitive in the global market, increasing demand for U.S. commodities, which draws down stocks and increases prices. This recently occurred in 2007-08, an era which experienced record-high grain prices. At that time the U.S. dollar was low and the Canadian dollar was in turn up at par.

A lower Canadian dollar can also help to improve spring wheat basis levels when the exchange rate is incorporated into the basis. This is in part the reason spring wheat prices have been holding relatively steady to slightly lower in the cash market, even though the daily MGEX spring wheat futures contracts are at new lows.

Although many factors influence the price of grain, producers identifying the trend in the Canadian dollar are better able to determine marketing and hedging opportunities for their grain and livestock operations.

Send your questions or comments about this article and chart to info@ag-chieve.ca.

The post Drozd: Canadian dollar falls to an 11-year low appeared first on Manitoba Co-operator.

Double tops and bottoms are chart formations which appear in the futures markets. Once completed, they are a reliable indicator of a change in trend, especially when they develop at a new high or low of an extended move.

In March 2015, my monthly column explained a double bottom formation that occurred when the canola futures market turned up from a low of $410 per tonne. In today’s column I will explain the double top formation, which alerted canola producers to the impending downturn from $540.

Double top

A double top begins to take shape when prices advance to a new high for the move. This is illustrated as point A in the accompanying chart. A pullback then sets in, which is referenced as point B. A second rally (C) brings prices back up to approximately the highs of the first rally, followed by a price decline. The double top formation is completed when prices fall beneath the reaction low (B) that occurred between the two tops.

When reversal patterns coincide with other technical indicators and formations, their reliability is greatly enhanced. In this instance, the futures price also dropped below the lower boundary of an uptrending channel, which is in itself an indication of additional weakness.

Double tops can provide us with a forecast of the extent of a market’s weakness. Simply measure the distance from the double tops down to the reaction low in between them and subtract this distance from that low to arrive at a minimum downside objective. (Point A-C) 539.20 – (B) 512.00 = 27.20. (B) 512.00 – 27.20 = (D) 484.80. The $484.80 objective was achieved on August 12, 2015. The November futures contract has since lost another $30 per tonne.

Market psychology

The first top develops after a sustained price rise. It will coincide with a growing willingness on the part of longs with large unrealized profits to cash in their earnings. The market stalls as the supply of contracts for sale exceeds the demand and the price begins to fall.

Short sellers jump in, convinced that the upward move has gone far enough. The market continues to decline until the price drop causes sellers to withdraw. The bull market is still intact, so when the price decline falters, buyers step in and prices once again begin to move higher.

At approximately the level of the first top, longs with a short-term outlook are quick to take profit. Longer-term traders who failed to take profits when prices made the first top, and sat through the entire correction, are likely to be watching more closely now that the market has come back up to its recent high. They won’t let the opportunity to take profit slip so easily through their fingers this second time around. Finally, there are the ever-present potential short sellers who are waiting to sell the proverbial high of the move.

At the high price level, the selling eclipses whatever buying remains and the market begins to lose ground and liquidation of long contracts becomes an inevitable reality. As prices fall with increasing acceleration, new shorts will also enter the market.

Trend reversal patterns identified by technical analysis are an invaluable tool for selling canola at or near the high before the market turns down. Canola producers who recognized the double top formation were able take advantage of the opportunity to sell old- and new-crop canola before the market turned down.

Send your questions or comments about this article and chart to info@ag-chieve.ca.

The post Drozd: Double top signals an end to the weather market rally in canola appeared first on Manitoba Co-operator.

“In general in years when supplies are tight locally or in a region, you would normally expect to see basis levels that are stronger than what you would see with a bumper crop,” said Alyssa Mistelbacher, an analyst with FarmLink Market Solutions in Winnipeg.

“A basis reflects the local supply-and-demand relationship, or rather the needs of a local crusher or grain company, so to the extent that the supply is smaller because of the dry conditions, this should lead to relatively stronger basis levels over the coming year. This is something that we are already seeing in wheat.”

John De Pape of Farmers Advanced Risk Management is also looking for basis to increase this fall if current conditions hold.

“Two years ago, basis got terrible because we as an industry didn’t have the capacity to move the grain that needed to be moved,” said De Pape. “The crop size was so huge compared to our ability to move it (and) farmers were desperate to move grain so the price had to go down and basis had to go down.”

But this fall, the game will be about best utilizing that capacity to fill orders from grain buyers.

“We will see basis improve simply because we have a set capacity in terms of handling and capacity and a smaller crop,” said De Pape. “The grain companies will bid up to keep their pipelines moving. That’s when you’ll really see some competition in terms of price. The basis will improve if they have more than enough capacity.”

But this tide will not lift all boats, the analysts said — and that’s why producers need to keep a close watch on local markets.

Like many market measurements, the fundamental principles of market basis are simple but the reality can be incredibly complex. For example, different classes and grades of wheat will have entirely different basis levels.

“With wheat in Canada, different classes of wheat are almost like different commodities — the basis for each will be different,” said De Pape.

That makes getting the best price a challenge, he said, adding many producers were caught off guard by the intricacies of marketing wheat after the end of the Canadian Wheat Board monopoly.

“A lot of them thought, ‘Well, I can trade canola — I’ve hedged my canola, wheat won’t be any different,’” said De Pape. “I think they found out it was. Under the Canadian Wheat Board the farmer’s price was not related to the futures price at any given time. Rather it was set by the wheat board as an initial and final payment. But negotiating payments with basis is quite complex.”

For example, buyers of hard red spring wheat set their price basis to the Minneapolis futures market, he said.

“But if they’re buying a lower-quality hard red spring wheat, maybe because the protein’s not there, the value for that wheat might be more relevant to the Kansas City futures contract because it might be competing against winter wheat.

“For most grain companies, their bid to the farmer will be a basis relative to Minneapolis regardless of where they’re going with it. But internally, if they’re buying No. 2 wheat that contains 12 per cent protein, it may be going into a lower-quality market so they may hedge that internally with Kansas City futures — or Chicago wheat futures, depending on the end use. “Buying wheat basis to Minneapolis futures and selling and hedging it in other markets make the basis paid to farmers do unexpected things.”

In its simplest terms, basis is the difference between the futures price of a commodity and the cash price. It’s a signal to grain companies looking to either attract more grain or slow down their intake as well as to farmers deciding whether to sell or store their product. The best way to look at basis is to consider it a price, not a cost, said De Pape.

“Futures specify a very specific location, a very specific time, and a very specific quality. Any time those things are different, the price will be different.”

Mistelbacher describes basis as a localized interpretation of the futures market.

“Think of it this way: A futures value represents a global price for grain on a given day, which is used as a benchmark and helps to establish local values,” she said. “The purpose of the basis is to allow the local cash price to adjust to fit the reality of local buying and selling interest. It ultimately reflects the local market conditions.”

But basis can be a temperamental measurement. It’s influenced by a number of factors such as foreign exchange rate, transportation and handling costs, storage and profit margin — some of which can vary wildly not just from year to year but even within the growing season.

The steep fall in the Canadian dollar this year is going to have a big impact and so producers should also keep a close watch on the exchange rate.

“As the value of the Canadian dollar goes down in concert with the rising U.S. dollar, our cash basis levels expand, giving us higher cash value opportunities,” said Mistelbacher.

The post Shoe on the other foot? Look for improved grain basis at the elevator this year appeared first on Manitoba Co-operator.

Recent developments in the grain market make one wonder if we’ll soon be hearing the term “captive grain,” but it doesn’t seem likely that the U.S. government or anyone else will be able to do anything about it.

The international grain business has been dominated by large players for a long time, but now they’re becoming fewer and larger.

And if you think that the era of the state trading agency ended with the end of the wheat board monopoly, think again. COFCO is reportedly set to play a much bigger role.

Who’s COFCO? It’s the China National Cereals, Oils and Foodstuffs Corporation, which used to be known as Ceroilfood back when it was mainly the agency responsible for imports. It’s now a diversified conglomerate, involving farming, milling, soy processing, hog production, finance, transportation, port facilities, hotels and real estate, and is now listed as a Fortune 500 company.

Through a joint venture with China Investment Corp. — also state owned — COFCO has acquired majority interest in two Dutch trading companies to form COFCO International Holdings. It reportedly intends to become a major competitor to the “Big Four” global agribusiness giants — ADM, Bunge, Cargill and Louis Dreyfus, though perhaps that should be “Big Five” now that Glencore is in the picture. It owns 675,000 acres of farmland in the former Soviet Union, and 200,000 acres in Australia. You can imagine that as with captive cattle, controlling production from that much land would give Glencore a bit of influence in the market.

But Glencore is a piker compared to China. In 2013 it announced a long-term lease of three million hectares (seven million acres) in Ukraine. How much farmland China has acquired in Africa is not clear, but one estimate in 2013 put it at 4.9 million hectares (12.3 million acres). Others put the figure much higher.

Concentration of ownership across the supply chain is not new — Cargill, Bunge, Dreyfus and ADM own elevators and processing facilities in both importing and exporting countries. But COFCO won’t be only in those businesses — it will be the main player in the world’s largest importing country and a major exporter from multiple origins, including its own farmland. Imagine the power it will have to manipulate the futures market, or to avoid using futures altogether.

Former ADM CEO Dwayne Andreas (ADM has now completely absorbed the former giant trading company Toepfer) used to say that waiting for a free market in grain was like leaving the porch light on for Jimmy Hoffa. It seems that’s more true than ever.

The post Editorial: Captive grain, and captive farmers? appeared first on Manitoba Co-operator.