Canola trades along the same trends as soybean. So as soybeans go up so does canola and vice versus. Canola then adds what is called a basis (or basis points) to the soybean price to arrive at its sell price.
These are some of the major factors that affect the basis points:
Supply, a surplus supply will affect the basis points in a negative manner. 2008 was the largest Canadian Canola crop but supplies are tight because farmers have been unwilling to sell their last year's supply at such low market prices, giving support to higher basis points.
Also affecting the basis points is the condition of the Canadian crop. The western crop looks good but there is concern that if an extended dry weather pattern occurs the crops could experience some losses. Eastern Canada has had ample rain but this has curtailed crop development so there is concern of frost before the crop fully matures. If the the weather does cooperate this crop is expected to be larger than last years crop.
Finally China is in the mix again with rumors of making a purchase.
- Value of the dollar affects the price of Canola. Currently the Canadian dollar has been losing ground against the US dollar, providing downward pressure on the basis points.
Like with Soybeans, barring any major weather disruptions, lack of rain in the nearby future or an early frost, we should see an easing of the Canola basis points in the next couple months.