Winnipeg Commodity Exchange Spread Activity Contributed To Record Volume Levels In Canola Futures

Despite the relatively limited price movement in canola values throughout the month of October, trade sources indicated that an active underlying cash market and significant spread trading activity contributed to a record month for pit trade volume and a new record for open interest for WCE canola futures.

WCE canola prices have generally followed the trends observed in edible oils markets, as proxied by the CBOT soybean oil market, over the past fifteen months. However, the volatility of the canola market has been considerably less than what has been observed in currency adjusted CBOT soybean oil values.

The difference in volatility (and longer-term magnitude of change in price levels) between canola prices and soybean oil prices has had a significant impact on the nearby canola board crush margin. CBOT soybean oil prices have moved from a recent high of in excess of Cdn$600 per tonne in early May 2000 to a low in October 2000 of about Cdn$490 per tonne, a range of over Cdn$110 per tonne. Given a canola oil extraction rate of 40%, the currency adjusted price volatility would imply a change in canola values of about $44 per tonne for canola. However, during this same period WCE nearby canola values have travelled from a high of about $280 per tonne to a low of about $245 per tonne, representing a price range of only $35 per tonne.

There has also been a significant move in the relative price levels within the WCE oilseeds complex, with flaxseed values gaining relative to canola values. Between March 2000 and early September 2000 the canola to flaxseed spread for the Jan '01 futures ranged between $35 per tonne and $45 per tonne. However, since early September, the canola to flaxseed spread in Jan '01 futures has narrowed almost $30 per tonne, to just over $10 per tonne. Some trade sources suggest that flaxseed values may trade at par or at a premium to canola values in the coming weeks and months.