Big Canadian crop, great prices; who could ask for more?

Canola futures have climbed strongly since June, but the rise is nothing like the rally in soybean prices.

That crop touched a record high July 9 and looks set to climb higher if the U.S. drought continues.

Canola trails partly because there is no drought in Western Canada and partly because the main driver of the soybean rally is rising soy meal values rather than rising soy oil.

Between June 1 and July 6, November canola rallied 9.7 percent while November soybeans climbed 17.2 percent.

December soy oil rose nine percent while December soy meal soared 24.7 percent.

Remember, soybeans are only 20 percent oil and 80 percent meal while canola is closer to a 40-60 oil-meal split.

Soy meal is used in a wider variety of livestock feed situations than canola meal.

The boost that soy meal has given to soybeans has created a price gap with canola that is making the latter more attractive, says oilseed analyst Oil World.

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That will likely cause some buyers, China foremost among them, to import more canola.

Oil World sees particularly large exports of Canadian canola to China in the second half of 2012.

Great prices and strong demand — could Canadian farmers ask for much more?

Oil World said last week that Canada’s canola crop could rise to 16.20 million tonnes, significantly more than Agriculture Canada’s or the U.S. Department of Agriculture’s forecasts, which at The Western Producer’s deadline July 9 had not been updated to reflect the larger canola acreage in the Statistics Canada seeding report.

A crop of 15.78 million tonnes is produced by slotting the new seeded acreage number, with an adjustment for acres actually harvested, into Ag Canada’s yield forecast of 33.37 bu. an acre.

However, crops are generally in good condition so the near record yield from 2010, just shy of 35 bu. per acre, is within reach.

That would produce a crop of 16.54 million tonnes, so Oil World’s forecast seems reasonable.

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The bigger Canadian crop is the main reason for an expanded global canola-rapeseed crop, said Oil World.

It predicts that the world rapeseed-canola crop will be 61.6 million tonnes this year, up from 59.59 million last year.

It expects global consumption will be 61.2 million tonnes, leading to a slight increase in year-end stocks, but that should not be a problem so long as the U.S. soybean crop is in trouble.

While canola prices are well supported, there are risks that could pressure them back down:

  • a sudden transition to a cooler, wetter trend in the Midwest. The critical month for soybean yield is August
  • a worsening of the eurozone debt crisis
  • China’s economy slowing even more and making a hard landing

As well, South American farmers are expected to seed a huge soybean crop a few months from now, and a transition to an El Nino could lead to good moisture in Brazil and Argentina.

However, that production won’t be harvested until next March.

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