Much of the Prairies' canola crop came in late this year and was grown in conditions that varied considerably. With their crop now in the bin, producers now must consider whether it's time to move unpriced canola.

"Conditions during the 2009 canola harvest varied as much as the growing season did," said David Wong, a market specialist with Alberta Agriculture and Rural Development at Grande Prairie, in a Nov. 30 AARD newsletter.

"Some of this year's canola crop was harvested in record high temperatures during September, with other harvesting done late in wet and muggy conditions. Now, with the crop harvested and stored, producers may not want to take a chance on spoilage. While canola may have gone in dry, a few hot spots in a bin can result in spoilage to more than just a couple of bushels."

Business speculation may be a strategy worth considering in years when such variable conditions occur, Wong said. Specifically this fall, such conditions include the possibility that canola may not be in storable condition and could deteriorate in the bin -- and a belief, among some, that there is an upswing in the future for canola prices.

"Producers can 'business speculate' with canola and possibly take advantage of the above conditions," Wong said. "To do a business speculation with canola, simply sell the canola into the cash market and replace the volume on paper with an ICE canola futures position."

In other words, a canola grower would haul the crop to a buyer (getting a price including a basis level), and then get a broker to buy the producer the equivalent amount of canola in the futures market.

While a producer will need to retain a qualified commodity futures broker to handle the futures transaction, selling the physical canola into the local market eliminates the possibility of the canola spoiling in your bin, Wong said.

"The basis level has recently widened for canola," he added. Basis levels had been very attractive until a few weeks ago when China announced it won't accept canola that isn't certified free of blackleg.

With the exception of domestic canola crusher basis levels, canola buyers who do export business have weakened their basis levels. Despite those weaker current basis levels, Wong said, "business speculation" with canola remains a viable alternative marketing tool.

It's speculation either way

"Keeping canola in the bin because of an expected increase in the price of canola, is in fact, 'speculating' with canola in the bin," he said.

If a producer sells his or her cash canola now and takes a futures position -- for example, buying March ICE canola futures -- he or she is still speculating, but with paper, Wong said.

Thus, he said, if March canola futures go up, producers will gain the difference between when they bought and when they pull the trigger -- that is, when they get out of the futures position.

Of course, if canola futures drop, so does the value of the futures position. However, Wong said, that's what would've happened to the canola if you'd kept in the bin. A drop in canola futures would have led to a drop in value of the net worth of your binned crop as well.

"By selling 'cash canola' now, producers will have cash flow sooner," Wong said in AARD's newsletter. "The canola futures position requires only about five per cent of the canola value as security, so the rest of the canola value can be used for other business purposes."