Price Risk Management for Canola 
Producers in the Northern Plains - Continued

EB-74, November 2000

Price Analysis - Continued

Basis

Relative to Canola Futures

The Velva cash basis was derived relative to canola futures converted to $US/Cwt. These are shown by crop marketing year (August to July) in Figure 18 and range from a low of minus $3.06 in May of 1994 to a high of $0.40 in June of 1999.

Figure 18.

The cash basis appears to be fairly constant throughout the marketing year. Notable changes are the large decline in basis from February to May in the 1993-94 marketing year and the increases that occurred in May to June in 1998-99.

The tendency for Velva cash basis relative to canola futures from 1993 to 1999 has been to decline initially to a low in October, then to increase to a high in February, decline to a marketing year low in May, and then increase into the next crop year (Figure 19). However, this average is affected by the change in basing points for canola futures in 1996 from Vancouver to the Saskatoon area.

Figure 19.

Another average was estimated for the 1996-99 marketing years (after the change in delivery). The cash basis since the change has a marketing year low that occurs in October, and then the basis increases throughout the remainder of the marketing year (Figure 20). Further, the range of the basis is narrowest from January to April and is widest from May to October.

Figure 20.

Relative to Soybean Futures

Velva cash basis was derived relative to soybean futures. This was estimated by converting soybean futures values to dollars per hundredweight and then calculating the basis. The soybean basis for the canola marketing year shows more variability than the basis relative to canola futures (Figure 21).

Figure 21.

Basis relative to soybeans ranged from a low of $2.00 per hundredweight under soybean futures in May of 1997 to a high of $4.00 over soybean futures in February 1995. From 1993-99 the Velva basis relative to soybean futures has shown a trend toward marketing year lows in September and highs in January-February (Figure 22).

Figure 22.

Relative to Soybean Oil Futures

Velva cash basis was derived relative to soybean oil futures by marketing year (Figure 23). The basis relative to soybean oil ranged from a low of $16.00 per hundredweight under soybean oil to a high of about $7.00 under soybean oil.

Figure 23.

Throughout the canola marketing year, the cash basis varied by as much as nearly $8.00 in 1998-99 to as little as $2.00 in 1996-97. The average basis from 1993 to 1999 showed a pattern of marketing year lows in September and November and then increasing into the next canola crop marketing year (Figure 24). Further, from 1993 to 1999 the average range in basis was fairly constant throughout the marketing year unlike the cash basis relative to canola futures, which tended to widen during production and harvest and narrow from January to April. On the other hand, the variability (standard deviation) of basis relative to soybean oil futures is greater than for the basis relative to canola futures. This suggests lower basis risk when hedging with canola futures than with soybean oil futures.

Figure 24.

 

|  Continue  |  Back to Contents  |

EB-74, November 2000