Outrageous basis levels and crush margins

[AdamSmith]

Soy oil price 22.22 cents $US per pound basis Oct. CBOT or 30.02 $Cdn per pound

Soy Meal price 192.4 $US per ton basis Oct. CBOT or 261.66 $Cdn per ton
or .1308 $Cdn per pound

Canola seed is approx. 40% oil and 60% meal

1 metric tonne of Canola has approx. 881.6 lbs of oil and 1322.4 lbs of meal

The product value of a tonne of Canola is 881.6 x .3002 = $264.66 $Cdn.
plus 1322.4 x .1308 = $173 $Cdn. for a total value of $437.65 Cdn. per metric tonne.

Nov. Canola $351.5 per tonne delivered to crusher Saskatoon.

and $305.5 pit price delivered in southern MB

What’s wrong with these numbers???

Well for one thing, the companies that are adding value to our Canola seed are fleecing farmers that’s what’s wrong with these numbers. Why do farmers need to take it in the seat of the pants because our esteemed grain companies and crushers have been spending money on $50 dollar an hour labour and $120/yard concrete when the Americans modernized in the 1970’s with $5 and hour labour and $25/ yard concrete. The American value added infrastructure is bought and paid for, ours on the other hand is leveraged to the hilt. REASON NUMBER 23 AS TO WHY THE CANADIAN SYSTEM IS SO COSTLY.

[farmerfudd]

mr. smith, you're right. I had this conversation over dinner today with a buyer.Nothing looks right to make sone major grain sales yet. It's raining again here [Wainwright] again .have'nt turned a wheel since monday. There is alot of crop out yet. Could be a year to hold on for a while. I'm not sure many can.
Your comment on expensive infrustructure proves that our grain moving system if flawed. At least when there was an elevator within 30 miles, some grain moved as did cash.

[AdamSmith]

Since 1995 the Canadian Grain Marketing/Handling/Transportation system has been restructured to function as a THROUGH PUT SYSTEM. Unfortunately it has seldom operated as envisioned. It can be more aptly labelled a SPURT system. A system in which marketers refuse to market and which grain buyers refuse to buy grain and rail cars sit idle for months at a time on abandoned track. Is dysfunctional.

A system which pits the regulator/marketer against all others is dysfunction.

Instead of taking advantage Sept. Oct. and Nov. weather to move the majority of the grain grown on the prairies our system deliberately stifles and impedes early movement of new crop grain to the great detriment and cost to the entire system, from farmers right on through to buyers. The grain companies widen basis levels, the CWB quits marketing when prices are good and demand is high only to wait and sell for depression era prices and only after they’ve sent the very clear message that Canada is a very unreliable supplier of grain. AND if ever the system begins to function like it should, a handful of greedy unionized workers in Vancouver can bog the whole system down.

With this as a backdrop it’s next thing to impossible for anyone to look at our system and see anything that resembles a bankable opportunity. The only sure thing within our system is that nothing, zero, nada, will work the same way two years in a row. If it worked last year it definatly won’t work this year and next year will be completely different again.

The most ironic thing is that this is what some people call ORDERLY MARKETING.

[charliep]

Just a comment on your board crush margin. I run a board crush margin on a regular that reflects your basic process. The one difference is I don't give the canola meal side the full value given soybean meal is 48 % protein while canola is 36 %. The adjustment I use is .7. That reduces your crush margin by about $50/t. Looking at the past five years, this crush margin has varied from - $30/t (yes minus) to $80/t over.

The board crush margin is somewhat misleading as does not include cash considerations. This past year, when then canola crush margin was - $30/t, canola oil premiums were US 8 cents/lb over soybean oil. Current premiums are about 4 cents/lb over.

A final question is whether our current futures contract prices accurately reflect cash markets? Changes to the canola futures contract which improve farmers ability to deliver against a contract might improve this. Thoughts?

[AdamSmith]

Charlie, I knew that the value of canola meal was less than that of soy meal but as you pointed out canola oil does carry a premium to soy oil. But without current reported or transparent price values for the pruducts, I was assuming the oil premium and the meal discount would cancel each other out.

I think most farmers are quite happy, or a better word might be content to pay 10 cents a bushel for 10 cents worth of service, but what has myself and many other grain producers a bit irritable is being asked to pay 75 cents for 10 cents worth of service.

A Manitoba basis level over $30 tonne is excessive, over $40 is gross. Simply citing lack of demand is a cop out. South America has been increasing it's production as well as it's sales over the last decade other countries seem to grow their demand for their grains why is it that Canada and in particular western Canada seem to have a shrinking demand for the grain we grow? From Canola to Wheat we seem to be letting others capture the business.

It's tough to be optimistic.

[TOM4CWB]

Adamsmith;

Sorry, but I have no problem with what is happening with Canola...

We all had plenty of opportunity to lock in reasonable basis contracts this spring, and if people chose not to allow the system a reasonable advance planning opportunity (by pre-contracting) it is no surprise now average past basis levels are now good basis levels.

If I want to speculate, I presell, and buy back paper, it is much cheaper to hold than actual grain. This allow the enduser and handlers an opportunity to maximise efficiencies... hence I got good basis levels.

THe other option would be Canola under the CWB, and a initial price of $200/t, would that be better Adamsmith?

NOT IN A THOUSAND YEARS!!!!!

[timm]

basis levels at pioneer grain whitewood(s.e. sask.) last winter got down to 0.now they are at 33 & mtl (cargill)moosomin is at 46.the best basis that was available for new crop was 31.rain mentioned a 7 basis may ,where would that be???

[charliep]

$7/t under would be reasonably aggressive bid at a high through put in the Calgary area (one of the cheapest freights to Vancouver).

Alberta canola basis ranges can be found at:

http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/agc5136?opendocument

WCE also posts cash prices.

http://www.wce.ca/marketinfo/market_info_index.asp?section=cashprices

[AdamSmith]

Tom, I did/do have pre priced new crop Canola and I am not in anyway suggesting a move away from the open market system for Canola. What I am suggesting is that as strong advocate of that system, I must never become a blind advocate. The greatest threat to free and open markets does not come from those who attack it but from those who sit silent and witness it‘s erosion.

Our system (the Board/Non Board hybrid) has so much room for improvement. Imagine an Iowa elevator saying that there not buying any Corn in October, they just don’t have any room for it! Or a Kansas elevator not buying wheat in July? Just to say it sounds preposterous. But I heard a lot of “we don’t have any room for Canola” or “we have room for about 700 bushels, but that’s it.” It doesn’t matter whether you have a Sept. delivery contract and that you specifically locked in the price and a Sept. delivery so as to deliver right off the combine. I might be able to deliver in Sept. I might not.

We may have an open market in Canola but many times it functions like it still has quotas

[TOM4CWB]

Adamsmith;

It is interesting that the CWB opened Winter Wheat up to 100% and CWRS to 25% when it is not possible for the elevator system now in place to hold this grain.

Plus all the feed barley shipping that is going into the export market on top.

There is still copious amounts of 02-03 board wheat sitting in the system, all paying handsom storage rewards to grain handlers... still, they would turn grain over and ship than have CWB plugging things badly.

A comment I heard this week, ... we have returned to the old system of telling the CWB what the grain handler has, and waiting till the CWB decides to ship it, rather than under tendering where grain handlers asked the CWB what it needed, then the specific grain requested was brought in to fill specific CWB orders.

Too bad CWB Directors decided to take five steps backwards on the tendering, to a non-commercial system!

We will all pay for this no matter if we are selling board or non-board grains.

[AdamSmith]

Exactamundo, Tom.

[rain]

We did a bunch of 6 under spot delivery canola yesterday delivered calgary region

[melvill]

Yes, canola basis levels are generally lousy! But, according to rain, there are some deals around out there. Here's the thing, though. Basis, in commodities that have basis, is a message from the grain trade of how badly they want a product. A wide or weak or horrible basis - whatever we call it - is the trade saying they really don't want something regardless of what the futures are doing.

In the canola market right now, it isn't just the grain trade that really doesn't want canola very badly. Foreign importers aren't that anxious to buy canola either. How do we know?

According to info I receive, Vancouver cash basis - what exporters have been able to get from buyers - have been less than $10 to $15/tonne over Nov futures. Normally the Vancouver cash market is $25 - $30/tonne over. The awful Vancouver cash basis explains the awful basis levels in the country.

[AdamSmith]

melvill,

Shouldn't we then be asking why is the demand for Canadian Canola so poor? and demand for all western Canadian grain for that matter, so poor?

We once were considered a reliable supplier and the go to place for Canola. But that's no longer the case.

Why has Canada become so uncompetitive and unatractive?

Yes, the wide basis is the market place saying we don't want your grain but WHY DON'T THEY WANT OUR GRAIN???

The board price for canola and bean oil suggest there is good demand in the world for oil and oilseeds yet the basis tells me that buyers will buy anyplace ahead of western Canada.

As I see it the federal government,the grain industry and farmers are drifting along in denial that there is something fundementally wrong with the western Canadian grain industry.

History suggests that only when a catastrophic collapse occurs will any one pay any attention.

[charliep]

Any thoughts on what should happen differently.

My analogy is to fishing. Your fish finder tells you there are fish down there but nothing seems to be biting. What you are waiting for is the big to bite the hook and run.

The issue today is to put some Chinese canola business on the books. Why aren't they buying - don't know. What I do know is when they do come in, they will buy bigger volumes. More shipping opportunity based on sales will narrow basis. Will China bite - again, don't know. I just know what to look for when it happens.

The signal now from the basis side is to be patient on cash sales (unless you have basis contracts at tighter levels booked). A higher futures market should suggest a selling contracts in Jan./Mar. Depending on your strategy, experience, etc., there are lots of other tools that a farmer can use.