Canola sales make sense if looking for cash flow

If you have to cash out a crop right now, why not canola?

After strong counter-seasonal price gains recently, a weakened Canadian dollar and storage concerns, canola might be the crop to move.

That’s what Adam Pukalo of P.I. Financial is telling his clients.

“I’m not sure how much higher we’re going to get,” said Pukalo about January canola futures prices, which have risen from around $490 per tonne in early September to almost $520 recently.

Some of the support for that canola rally came from the falling Canadian dollar. It sold off from US83 cents in early September to about 78 cents.

There’s no reason canola can’t go higher, and no reason the loonie can’t fall further, but neither is a sure bet. And there is definite downside pressure for canola and a possibility the loonie could rise.

“I can see canola down another $10 to $15 (per tonne) to the $500 level,” said Pukalo.

Meanwhile, prices of other crops, including wheat, are weak, so selling them would not be taking advantage of strength.

“It’s easier holding on to wheat long term,” said Pukalo, noting some of his clients are worried about the potential for damp canola in their bins spoiling.

“There are moisture issues with holding it in the bin.”

Farmers don’t need to sell canola out of fear that it is unreasonably valued. Stocks aren’t huge and if more is consumed through the winter, there’s a good chance for a rally to push canola futures back to last summer’s peak territory.

“Maybe come springtime we see canola closer to that $530 area,” said Pukalo.

But for now, if cash is needed, selling canola isn’t a bad idea.

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