Canola outlook tied to soybean price

Tight U.S. carryover | Price attractive to China

A market analyst believes a record crop of almost 18 million tonnes shouldn’t cause canola prices to collapse, as long as soybean prices hold up.

Marlene Boersch, a partner in Mercantile Consulting Venture, told Agri-Trend’s 2013 Farm Forum Event in Saskatoon last week that oilseeds should be fairly well supported for much of 2013-14, but downward pressure could build next crop year.

Indeed, the global grain market might have a comfortable supply for the next few years, requiring growers to watch costs.

“With Canada having to carry out more grain than what is perhaps necessary because of transportation restrictions, it will take us a year or two to digest that,” Boersch said.

“From a grower’s point of view, you will be for two to three years in a phase when you should really watch your costs.… Then we will probably see another growth phase.”

Global crop production soared this year just as demand growth started to slow, most notably in the biofuel sector, which is becoming a mature industry, Boersch said.

The trend to lower crop prices hit home last week when nearby canola futures dropped almost $20 per tonne to account for the huge Canadian crop.

However, Boersch doesn’t think there will be a market disaster be-cause following a short-term reaction to the Statistics Canada report, canola’s price should rise to reflect its constituent parts, oil and meal, which follow soybean oil and meal prices.

“Will a record Canadian crop collapse canola prices? The answer is no because canola is not the price determining factor for the major oilseeds,” she said.

Canada might be the biggest exporter of canola-rapeseed, but rapeseed is a minor part of world oilseeds.

Rapeseed makes up 13.5 percent of oilseed production and 10 percent of trade, while soybeans account for 57 percent or production and 85 percent of trade.

Soybean prices are down from last year but well supported, at least through the winter.

“The U.S. will actually run a fairly tight carryout at the end of the year,” she said. “They are very front end loaded on their exports.”

Canola prices have become attractive compared to soybeans, she said Dec. 5, before steep canola price declines Dec. 6 and 9.

“Right now we are about 13 percent, or 12.5 percent cheaper in canola than on soybean. That is why we think the Chinese will continue to buy as much canola seed as we can ship.”

Boersch is optimistic that canola exports could climb as high as 8.5 million tonnes from 7.26 million last year.

The caveat is the Canadian rail system. Boersch was irked when federal agriculture minister Gerry Ritz said early in the crop year that he was satisfied with movement.

“It is unacceptable. We are not positive on transportation,” she said.

“We have talked about this for the last 30 years. It is holding us back because we spend money on market development and then we can’t ship it.”

More downward pressure could be felt in oilseeds as spring approaches.

If South America harvests a record soybean crop, its impact will likely be greatest in May when farmer and exporters are trying to move as much as they can because of limited on-farm shortage.

As well, the corn-soybean price ratio favours soybean seeding in the United States. As a result, Canadian farmers should try to price most of their canola before then to avoid spring price weakness.

It could take a few years to work through the surplus crop stocks, but Boersch remains optimistic in the longer term.

“We are driving toward, in 2050, in excess of nine billion people. It is still a challenge to feed all those people and we need to keep increasing production.”

She said recent reforms proposed by China’s government, such as granting property rights to citizens, could ultimately increase incomes there and rebuild the annual growth in food demand.

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