Canola Spread (Futures Fridays)

Featured Commodity:

Canola Spread between old crop and new crop Canola.

Technical aspects:

Technically speaking old crop should come into alignment with new crop. Normally there is a discount from old crop to new crop. This year the new crop canola is trading at 120/mt less than old crop. Basically, the market is thinking that the supply will be replenished by Nov 22. This trade is done because I think the supply won’t improve much. The new crop price will rise to meet old crop OR new crop will fall to meet new crop.

Is there Trade?: Yes. A spread trade. Buy new crop (long); sell Old crop (short)

· Risk: Bumper crop and spread widens out. Spread goes to 200 then exit.

· Reward: Spread narrows in to new crop and old crop meet. Potential to profit could be $100/mt. Spread goes to 20 then exit.

· Duration: run trade until June 1. Must exit because July Futures comes off the board.

· Mechanics: SELL 50 (1000MT) July 22 Canola @ 1135 ; BUY 50 Nov 22 Canola @ 1011 for a spread of 124