Canola Values Reflect This Year's Large Crop

Crop year-to-date canola prices are trading well below the levels observed over the past three years, pressured by record Canadian and world oilseeds production. Crop year-to-date export demand for canola has been strong. However, domestic demand has not kept pace with year ago levels due to poorer crush margins, according to trade sources. The market is striking a balance between discounting prices to the point where additional demand can be found versus producers' willingness to dramatically increase carry-over stocks. Given the large supply of canola and relatively large commercial stocks, the market is showing spreads that are close to full carry. The Nov '99 to Jul '00 spread ended the month at $20.30/tonne (see Chart 2), well above the year-ago level of approximately $17/tonne. Given that reported producer best-bid basis levels for July delivery are narrower than for nearby delivery, the market is willing to pay producers up to about $25/tonne to store their canola until July. Furthermore, the market ended the month with carry right through the new crop months and into the Nov '00 contract. Since February 1998, the Vancouver cash basis relative to the nearby futures has ranged $30/tonne (from a low of $20.00/tonne over the nearby futures to a high of $50/tonne over, excluding the one-day spike to $66.70). During this same period, nearby canola futures have experienced a price range of over $160/tonne (from a high of $431.50/tonne in May 1998 to a low of $268.80/tonne on October 29, 1999). Best-bid basis levels in the par region during this same time period have maintained a stable relationship with Vancouver prices, with inland prices offering a narrower basis during late July 1999 and August 1999.