Incentive to Carry Canola
Canola futures have taken off thanks to fundamentals. The global canola supply situation is snug, Canada’s balance sheet is tightening, and demand is solid for oilseeds in general. Nearby canola futures are trading at levels not seen in a couple of years thanks to the above-mentioned factors with FBN® leaning towards China likely being a larger buyer this year than last. This week, we refreshed a previous study looking at canola carry at harvest time across provinces. The incentive to carry has actually declined over this week. Nearby demand is strong. This is what we found with the model update:
There is an incentive to carry canola into February for Alberta and Manitoba, and that incentive is above the average for those provinces.
For Saskatchewan, the carry is in line with the average, indicating that cash prices signal canola is needed now rather than later.
There is no incentive to carry right now in Alberta, underscoring strong demand.
For all three provinces, the carry incentive drops from February to March, but that could be partially tied to the contract roll from the March futures contract to the May futures contract. May futures are trading at a discount to March futures right now.
The incentive to carry declined this week for all three provinces.
The cash side of the market is strong. While the average canola basis across the three provinces is below last year and is weak relative to several previous years, cash values as a whole are well above last year. In fact, cash levels are trending higher than in recent years despite basis being under pressure. We lean towards the weakness in basis being related to strength in futures and elevators/processors squeezing basis lower since the futures market is strong.
FBN's take on what this means for the farmer
The fundamental situation for canola is strong. Be sure to take advantage of the current strength in the market and catch up to FBN’s recommendation targets. But, the canola balance sheet is tight. We are going to wait to pull the trigger on additional recommendations for now as we think short-term factors lean more supportive than negative in the near term for the 2020 crop.
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