Canola prices have been fairly resilient this year, despite slower rail movement.
Cognizant of transportation woes, what should we expect for basis moving forward?
We covered the transportation issue of Canadian grain a few weeks ago, with special mention of how oil movement has increased while grain has dropped.
It’s clear that grain transportation by rail, as well as grain handling capacity, are scoring very poor again this year. Therefore, we wanted to assess whether 2017/18’s outcome is going to be as bad as the 2013/14’s transportation issue.
Using that crop year as a benchmark, here’s a review of where we could see things heading in the next few months as relates to canola.
First though, a refresher.
A bumper harvest filled Western Canada’s grain handling system to the brink in fall 2013.
Temperatures were bloody cold, trains were not moving whatsoever, and producers were left with very few marketing options over the winter of the 2013/14 crop year.
On one hand, farmers were unable to deliver their crop. On the other hand, they were dealing with depressed prices and very weak basis levels as commercials were simply signaling that they did not want to buy their grain.
Finally, in March 2014, the Canadian government intervened by imposing regulation on railroad companies. In particular, they asked the railroads to allocate a certain number of railcars to ship grains so that the backlog could be cleared.
Thus, we figured it would be interesting to look at export volumes from this time back in the 2013/14 crop year, to where we’re at today. We’re specifically looking at the previous 6 weeks, as well as the next 6 weeks. We then are comparing this against Ag Canada’s forecast for full-year export numbers.
Where the data is available, we also looked the basis levels or cash prices of the crops, again comparing things today to where they were in 2013/14 (and where they went from March 2014 onward).
So what does it look like?!?!
Let’s first look at total grain exports.
As the first chart below shows, from week 25 (basically the end of January) to week 31 (the beginning of March), total Canadian grain exports are sitting at 24.8 million tonnes. tracking a bit behind the 3-year average. Further, they are ahead of the 2013/14 pace of all Canadian grain exports.
Thus far in 2017/18, according to CGC, year-to-date volumes of all exported grains are at 24.8 million tonnes. This basically matches the 3-year average but is in fact nearly 16% (or roughly 3.3 million MT) higher than the same period in 2013/14.
What is likely going to happen as we roll through the next 6 weeks?
Well, the ideal situation is that Canada’s grain handling system will run at a very fast pace to achieve Ag Canada’s export target. To meet the 46.2 million tonnes of total Canadian grain exports forecasted for the 2017/18 crop year though, the pace of exports will have to nearly double!
Quite simply, this would mean that Canadian total grain exports would have to jump to more than 1 million tonnes, from the 600,000 tonnes or so that’s been shipped out weekly right now.
Looking at canola, 6.2 million tonnes of the oilseed has been exported out of Canada thus far in the 2017/18 crop year. This is about 10% higher than the 3-year average for this time of year, and 40% above what was moved out of the Great White North in the 2013/14 transportation-plagued crop year.
Digging in though, Canadian canola exports the past three weeks have been tracking behind the 3-year average for this time of year but ahead of where they were back in 2013/14.
Going forward, Canada’s grain handling system will need to export canola at almost 250.000 tonnes per week to achieve Ag Canada’s export target for 2017/18, which is set at 11.5 million tonnes.
Let’s look at prices now.
For simplicity purposes, we’re looking at average canola basis delivered to Saskatchewan elevators.
As the third chart shows, canola basis levels were depressed in 2013/14 given that canola was not moving through the pipeline.
Basis levels then improved in the next year but we can easily see some seasonal trends here. In winter, we see basis widen and that start to narrow/improve in the spring and summer months
We have to point to the fact that basis dipped in 2016/17, which was mainly due to a then-record crop.
More recently in 2017/18, we see that the canola basis is hovering around the 3-year average but not with a lot of direction.
Canola basis is not depressed as it was in 2013/14. In contrast, it is actually quite strong.
In a similar vein, canola exports are tracking well ahead of previous years although, it will need to continue to pick up steam through the last 5 months of the marketing year.
That being said, we continue to see $12 CAD/bushel delivered deals close in southern Manitoba with prices pulling back about $0.80 to central Saskatchewan. Prices in Alberta are finding somewhere usually in the middle of these values.
If you’re looking for a canola deal, just post it on the FarmLead Marketplace – all the major buyers are constantly shopping right now.