Farmers who want to achieve $500 per tonne canola for their 2017-18 crop should consider locking in prices before June, says the publisher of Oil World magazine.
A short-term squeeze on global oilseed stocks will probably begin disappearing by early summer. Supply should grow through the rest of 2017 leading to a surplus in 2018, ushering in lower prices.
Canola prices at $500 are “very attractive … in a situation in which you are reaping a record crop,” Thomas Mielke said at Manitoba Ag Days Jan. 17.
“There is a risk that if … I am becoming too greedy, I may forget to sell it before prices start declining.”
The price weakness the second half of 2017 and in 2018 will likely be linked to rising world palm oil stocks, Mielke said.
Palm production, which dominates the world vegetable oil market, has generally risen in recent years but the trend was broken by a two-year drought in Malaysia and Indonesia that lowered production.
That helped the price of other oilseed crops, such as canola and soybeans, to surge.
The drought in the palm production region is over and yields are recovering, Mielke said.
While the outlook for palm weighs on oilseeds, canola’s situation benefits from a growing demand for canola oil and a declining supply.
“The world needs it,” said Mielke.
Ukraine’s rapeseed exports are declining as farmers there react to winterkill damage and switch to sunflowers. The European Union and China have declining production.
Only Canada and Australia are seeing production increases, making it a thinly supplied oilseed.
China’s demand is good and growing, both for canola and soybeans.
However, good canola fundamentals aren’t enough to guarantee good prices. Much of the value of canola comes from its oil and that is strongly influenced by palm values.
Canola might retain its relative strength compared to other oilseeds but can’t avoid the overall sector price weakness.
President Donald Trump’s sabre rattling on trade might have some worrying about a U.S.-China trade war, but Mielke doubts China can affect world oilseed supply and demand fundamentals to any meaningful level by blocking U.S. soybean imports.
China is “getting more and more import dependent” on oilseeds, so if it were to hit U.S. soybeans with an import tax, the country’s im-porters would likely shift to South American supplies.
The U.S. would be able to supply buyers who formerly bought South American soybeans. Actual global consumption would likely be unchanged.
Mielke said he expects Canadian canola seeded area will rise this spring because of current good prices. However, farmers shouldn’t assume those prices will last through the 2017-18 marketing year.
“When is the pendulum swinging back? Because when it swings back, you will be selling,” said Mielke.
“The next 15 months will be different. The world will move out of the tightness (in oilseed stocks) and into a surplus.”