Canola Basis

[crusher]

I was offered a positive basis on canola yesterday for immediate movement, and sold a bunch. Today I got a call from another grain company with a better offer for mid December delivery, so I sold some more. Seems like there must be some exports sales being made, even though the trade says we are overpriced at current levels. What gives? The same thing appears to be happening in the states. Is it time to buy the futures? Anybody else know what's going on?

[charliep]

I have to tell a story from my UGG days. I remember having the canola trader sitting in my office with a vessel sitting in Vancouver and not enough canola in the system to fill it. He was offering good basis and yet the uptake from farmers was slow (they were bullish). Needless to say, there was stress in his life.

Ten minutes later I have a farmer calling me and asking why the good basis. Realizing who I worked for at the time, I didn't say directly UGG had a ship in Vancouver and needed canola but I think I gave some pretty good hints. The last words I heard were if we needed canola that bad today and were willing to pay up, we would need it just that much more over the next month/would pay more.

A week passes and the trader comes into the office looking as relaxed as anyone I have ever seen. He had paid the price to get deliveries and got enough canola into the system to fill the vessel. His comments were he was never going to do that again - he would only aggressively sell what he was comfortable he could attract canola up the driveway at the elevator. A fancy way of saying he pretty much withdrew from the canola market for a period of time.

Mean time basis levels widened and futures dropped. Same farmer from before phoned to chew me for not telling him in a more forcefull way that the market would drop the way it did. I could only shake my head.

The recommendation remains to scale up sell into the current situation. Not the whole crop but enough to pay the bills/capture some of the rally. I like the saying of a good friend of mine - reward market rallies with sales.

I will leave your comment on replacement strategies for discussion with a couple of comments.

1) Fate of the WCE after going electronic?

2) If you go CBT soybean/soyoil, what in the current market news makes you bullish? 3.15 bln bu US soybean crop. South America production likely up (weather good to date).

3) What are your assumptions on the loonie?

[TOM4CWB]

Charlie;

I think a major part of this discussion should be about profit on the sale at the price offered.

$6.50 times 40bu/ac... $260/ac. Can a farme make a profit on this return?

$8.00/bu @ $320/ac was better of course!

$10.00/bu was hedged by some last spring.

An average price of all three... Canola in 04 was one of the most profitable in recent history!

Do we need to reown grain that was already a great addition to the profits of our farms... or is this just wild eyed speculation... !