While the futures price has dropped for feed wheat, basis levels have remained fairly stable, with the reported best bids staying in the range of $10.00 under to even - where they have been for most of the current crop year. In fact, best bid basis levels have spent the better part of the last year in this narrow range, with the exception of a few brief periods where the basis level was positive. Average daily bids, as reported by WCE Merchant participants, within the par region have also remained within a $10.00/tonne range since the start of the crop year, while outright futures prices have experienced roughly $30.00/tonne in price movement. Chart 2 also shows that companies needing nearby feed wheat have been offering a significant premium relative to the average price.
The relatively stable basis is evident when compared to the cross commodity basis using CBOT corn futures. The par region feed wheat best bid basis to CBOT nearby corn futures has ranged from $24.00 under to $32.00 over, thereby highlighting the importance of the WCE feed wheat contract as the hedging mechanism for Canadian domestic feed wheat.
Traders should remember that the WCE feed wheat quality specifications change effective with the July 2003 contract. The most significant difference may be the change from a 2 per cent fusarium content to a par deliverable vomitoxin content of maximum 0.50 ppm. On February 28, 2003 the market held a May/July carry of $9.50/tonne (May futures settled at $159.00 while the July futures settled at $168.50). This $9.50 is beyond the calculated storage and interest cost of carry of $4.86/tonne (Storage costs = $0.06 daily storage rate x 61 days = $3.66; Interest costs = 4.5% interest rate x 61 days/365 x $159.00 price of May contract = $1.20). The $4.64 premium to storage and interest costs likely is reflective of the quality differences between the May and July contract quality specifications.
