This week, FBN examined carry for canola relative to history for the period covering December to March. Compared with history, the carry for canola is below the average recorded in 2015-2019 for the three key provinces. But there are some signals across provinces.
FBN took historical spot prices in mid-October (Oct. 20) across locations and compared that with what the same location is offering for delivery in December, January, February and March. Then we computed the rate as:
(December Price - October Price) / October Price
These rates are not annualized or adjusted for the duration of the carry period. For 2020 values we took prices offered for future delivery as of this week. The gray shaded areas are the historical ranges since 2015.
There is an incentive to carry canola in Alberta and Saskatchewan post-harvest. But for Manitoba, there is a negative carry for the December to January period. In other words, there is incentive to sell the crop in that province on average after harvest and into the new year rather than hold onto it. Also, on average, the carry is lower for each month relative to history across the three provinces. This could be tied to better domestic demand in place now versus in the past. And it also may be related to expectations of smaller stocks available post-harvest than last year or prior.
...only relative to this crop year. Basis remains weak overall versus history, though we are seeing some values now that were hit in the 2015/16 crop year. Alberta and Manitoba are showing better basis levels on average than Saskatchewan. Recall that in a recent report, FBN cited how basis levels weaken seasonally, on average, in June and July ahead of the new crop season.
Canola futures continue to take some direction from ongoing events in China, but Canada’s domestic demand and EU demand are strong. Basis could weaken in the near term based on seasonals, but the incentive to carry the crop past harvest is not as hefty as it has been in history. This is going to be a crop year where every penny counts. FBN wants its clients to be as prepared as possible to make the best of the current market structure.
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