Canola thought to be hitting bottom

Analysts think the crop has a better outlook than others because of a bullish world vegetable oil situation

SAN DIEGO, Calif. — Bumping along at the bottom isn’t fun, but current low commodity prices should be the end of the bad times, two economists told the Canola Council of Canada’s annual convention.

If commodity prices have hit bottom, it suggests the longer-term direction is upward, and the canola outlook is particularly bullish.

“We are forming a floor right now for most commodities,” Conference Board of Canada senior economist Glen Hodgson said March 2.

“We think that there’s a fairly bright future for many ag sectors.”

Bill Lapp of Advanced Economic Solutions said he thinks crop prices are levelling out at current levels and will rise gradually from here.

“I think we’re going to stay at these elevated levels,” said Lapp, noting today’s low prices are actually at the upper end of the pre-2002 price range.

“It’s my opinion we have probably found a bottom.”

Lapp expects corn prices to average $4 to $4.25 per bushel for the next few years, and soybeans to average $9 per bu.

He said canola has a better relative outlook because world vegetable oil supplies look bullish until 2020, and demand for canola oil seems particularly strong.

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Lapp said the fact that U.S. dollar strength in recent weeks has not been matched by further price weakness in U.S. crop markets is a “good sign” that crop prices may have hit at least a nearby bottom. He also thinks a spring rally is likely if weather worries arise.

Because of big North American corn and soybean stocks, “if it (a spring rally) is big enough, I think farmers are well-advised to sell into it.”

Vegetable oil prices are affected by crude oil prices, and Lapp said most economists think long-term crude prices will recover to $35 to $75 per barrel, which will support higher veg oil prices.

Hodgson said he believes the bottom in commodity prices is being reached, but it might be another year before the recovery settles in.

After the bottom of the market has passed, probably in 2017, “we think prices are going to improve for many commodities in the next five years…. We think that there’s a fairly bright future for many ag sectors.”

However, Hodgson and Lapp saw many short-term challenges to a substantial price recovery.

China’s announcement about toughening maximum dockage levels in canola shipments could damage canola prices.

“It could really disrupt things for some time,” said Lapp. “There are a lot of clouds, and the biggest one in front of us is Chinese trade.”

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However, he doubts China can avoid importing large amounts of vegetable oil in coming years. The country’s production won’t keep up with demand, and the Chinese government’s claims about having huge canola oil stockpiles don’t add up.

“I’m not sure how their math is on that,” he said, noting that China claims to have more than 50 percent more rapeseed oil in store than the U.S. Department of Agriculture believes exists globally.

Lapp believes veg oil stocks will shrink and drive good prices as the next few years of production and consumption develop. That’s especially beneficial for canola, which contains much more oil per bushel than soybeans, which are mostly meal.

“It looks extremely favourable for the veg oil market and for canola,” said Lapp.

World canola stocks are not burdensome, and veg oil stocks are getting tighter. For example, canola oil stocks in Europe are forecast to fall to 12 year lows and become even tighter in 2016-17.

Lapp said canola prices should strengthen as stocks tighten and if China works through a short-term slowdown of canola imports and then returns to the market.

“There’s a lot of positive news right now.”

ed.white@producer.com

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