Soybeans are allowing canola prices to cling to levels they have little chance of holding in a few months time, some analysts say.
“If you are bullish oilseeds, you really run out of that argument by the March contract,” said CWB analyst Neil Townsend. “If the South Americans start to do well, I think it’ll take it down quite a notch.”
Ken Ball of P.I. Financial said Canadian canola prices will be hammered lower if Canada’s canola crop is as large as suspected, if the U.S. soybean crop isn’t greatly reduced and if South American soybean crops are good this winter.
“With that huge canola crop coming in, if the (soy)bean market ever got sluggish on us, we’ll be in big trouble,” said Ball.
“It could go down $100 (per tonne).”
Soybeans rallied on the release of the U.S. Department of Agriculture’s Sept. 12 World Agricultural Supply and Demand Estimates, which validated the beliefs of many traders that soybean yields are already poor.
However, those gains were lost Sept. 16 as bearishness overwhelmed the Sept. 13 optimism.
Canola prices fell with soybeans, dropping to just above $490 per tonne on the November contract and giving back much of the recent rally that had seemed to offer hopes that canola could crawl back above $500 for more than just a temporary reprieve.
Most analysts believe Canadian canola prices are well above levels justified by underlying world vegetable oil prices, which are poor.
The world is awash in cheap vegoils such as palm oil, but vegoil crops such as soybeans and canola are more highly priced in North America because of soybean’s meal value.
Canola’s meal value is a much lower proportion of its overall crop value than for soybean meal, which makes up most of the value of that crop.
Livestock producers have had to pay high prices for soybean meal since the 2012 U.S. drought and feedgrain rally. However, demand has been high enough to make up for weak oil prices.
Townsend thinks soybean meal and canola meal will both face challenges from other North American feedgrain supplies and imports because their high prices have encouraged users to look for alternatives.
“To me, it’s hard to believe that the soy meal and the canola meal can maintain their market share,” said Townsend.
“I can’t understand why you would buy it unless you had to.”