StatsCan moved it’s yield today to 32.2bpa, I have been using 33.1. Their number won’t surprise anyone, and is actually at the lower end of expectations. Starting to consistently see production number estimates in the 15 million mt range now, that works back to a yield of 33.8bpa. It is certainly possible, but for now I am going to hold my guess. Just like the 27bpa that the CWB tour guessed back in July was way too low, at some point estimates are going to eventually exceed reality. No matter which of the yield numbers you believe demand rationing is required. To keep a carry-out in the 1-1.5 million mt range we will need to shave 1.5ish million mt of demand. That decrease in demand isn’t going to be easily accomplished with a new large crush plant in place in Camrose (Cargill), and continued weak Canadian Dollar. Both Futures and Basis have been able to stabilize and even firm up through Sept after a sort of early harvest price crush in August. With North American Soybean futures “bottoming” and another big crop being harvested in the US we are going to need something fundamental from Brazil or Argentina in the coming months to make this market move. Cash prices seem to be content right now between $10-10.50bu, and by content I mean that both buyers and sellers are satisfied enough to take action.
|Canola Oct 2||2014-2015||DLN 2015||StatsCan 2015|
|Seeded Acres ‘000||20774.6||19839.7||19839.7|
|Harvested Acres ‘000||20618.1||19584.7||19584.7|
|Production (‘000 MT)||16410.1||14702.3||14302.5|
|Imports (‘000 MT)||65.0||115.8||115.8|
|Total beginning stocks (‘000 MT)||3008.0||2321.7||2321.7|
|Total supplies (‘000 MT)||19483.1||17139.8||16740.0|
|Total domestic use (‘000 MT)||8030.4||8050.0||8050.0|
|Total exports (‘000 MT)||9131.0||7425.0||7425.0|
|Total demand (‘000 MT)||17161.4||15475.0||15475.0|
|Total ending stocks (‘000 MT)||2321.7||1664.8||1265.0|
|Source: StatsCan and DLN AgVentures|
With this set-up I still expect seasonal strength next spring, but certainly hope that there will be opportunities sooner due to South American production problems, but before that can happen they need to seed the crop so let’s not get ahead of ourselves. For now though there is opportunity in the bid set-up to take some action and move into the 50% sold range, or more if shipping in winter is your plan. The first important piece of this strategy is that there is almost no carry in the futures market. Right now July 16 is only a $6mt premium to Nov 15 (has bounced between $6 and 10mt lately). A small carry is the futures way of saying sell it now vs later. As the crop grows and buyers gain better coverage I expect the story to shift between now and calendar year end. By that time there is more likely to be $6-10mt carry on each contract. We don’t want to take the sell now signal because we know harvest sales are occurring, carry-out will be tight, and there is still possibility of crop issues in Brazil and Argentina in the next 4 months. The second trigger is that Basis is also paying to delivery now vs later. This tells me that the futures incentive is not large enough so Bass is having to stay narrow to meet end user needs. Crush basis for this time of year around -15 delivered to a plant are pretty good relative to history. It isn’t amazing, and if futures don’t rally on some future crop issue should stay tight like this. But this strategy is designed to capture a rally in the next 10 months. If that rally does occur Basis is very likely to widen as futures rise in order to keep farmer sales evenly distributed through the crop year. If this rally does occur Futures spreads should also shift to paying to store for the same reasons, grain needs to be held for future demand so an incentive to hold off on sales will show as a larger carry. The play is lock in a Basis now, roll to July 16 futures. Deliver now and wait to lock in futures until carry widens and/or more attractive futures are available.
This is a low urgency strategy as if you look at cash values this scenario will take volatility out of your net price. Whichever way futures go, Basis will do the opposite keeping net prices in a tight range until we are well into the marketing cycle and the demand pace can be measured against what is required to still have Canola available for shipping in 10 month’s time. This will optimize your price if rallies occur, if they don’t you should not be penalized, but your net won’t be any better than those who wait on both Basis and futures.