Canada Markets

After trading as wide as $1.98/bu under the nearby future in late June, the average Prairie-wide cash basis has steadily narrowed as we move deeper into the 2014/15 crop year. Note the basis is calculated using available internet bids and may not reflect the situation in any specific area.

Tuesday's basis averaged 4 cents under the December future, the narrowest level calculated since wheat has traded on the open market after August 1 2012. Basis levels at Alberta and Manitoba locations, closest to port, are largely indicated as a premium to the future.

At first glance, there may be comfort in knowing that Prairie basis levels are closing in on those seen south of the border. On Tuesday, DTN's National Average Basis, which is calculated by subtracting the National Spring Wheat Index from the nearby Minneapolis future, was calculated at 2 cents per bushel under the December for the northern spring wheat growing states, leaving basis levels just 2 cents apart. DTN charts also indicate that current levels are much narrower than average as the current period would typically result in basis levels near the widest levels seen over the course of the U.S. crop year.

Further consideration would suggest that achieving a Canadian dollar price which is equivalent to U.S. dollar prices despite Canadian dollar weakness against the U.S. dollar will be of little comfort to producers. Tuesday's spot Canadian dollar closed at $.8857 CAD/USD which would add approximately $.73/bu given Tuesday's close of $5.64 1/4/bu.

Latest estimates from Agriculture and Agri-Food Canada have forecast Canadian wheat exports (excluding durum) to slightly exceed the volume shipped in the 2013/14 crop year. Exports to date are ahead of the cumulative pace needed to reach the 2014/15 target of 18 mmt, while as of week 9, cumulative exports through licensed facilities are almost 21% ahead of last year.

At the same time, producers are perhaps not responding in the same fashion. Year-to-date producer deliveries into licensed facilities are 5.3% behind year ago volumes. With harvest nearing an end, grain companies have received the movement off of the combine and from here on in may be forced to pry it out of farm storage.

As a result, basis levels should continue to narrow.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

(AG)

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