Efficiency key as canola prices continue to fall

Lane Stockbrugger just bought two shiny, new grain bins because he knows he is going to have a lot more canola carryout than usual on his farm near Englefeld, Sask.

That stored canola is worth less than it was a few months ago and many analysts think there is further depreciation ahead.

Canola that began 2019 with a cash price of about $10.50 per bushel is down to about $9.75. Some analysts believe it will be trading in the $9 to $9.50 range by summer.

“I wouldn’t be surprised if we did see prices in that range,” said Stockbrugger, who is chair of the Saskatchewan Canola Development Commission.

“Do I wish we would have sold more (canola) sooner? Absolutely.”

He said it is hard to assess what impact $9 canola would have on western Canadian farmers because everybody’s financial situation is different. But generally speaking it wouldn’t be good.

“This is going to be a challenge for farms for sure,” said Stockbrugger.

Saskatchewan Agriculture produces crop planning guides every year detailing the anticipated average revenues and expenses for each crop in the different soil zones.

The 2019 guide has a break-even price of $8.81 per bu. for canola grown in the dark brown soil zone. That is the price where farmers cover all their variable and fixed expenses given an average yield of 50.5 bu. an acre.

Bruce Burnett, director of markets and weather with Glacier’s MarketsFarm, said $9 canola would result in slim margins.

“If you’re not making any money on canola, then where are you making money from?” he said.

If farmers are hovering around the break-even point, achieving good yields is going to be more critical than usual.

“If you have good yields, you can still eke out a profit on it,” said Burnett.

Farmers with poor yields will have a good chance of losing money growing canola.

Farmers are in a difficult position with India’s restrictions on pulse imports, China’s ban on Canadian canola and Italy backing away from Canadian durum.

“I don’t think the situation is absolutely desperate right now but I’m very worried, especially if we see some adversity this year,” said Burnett.

Significant financial damage to the prairie farm economy is usually associated with drought, he said.

“The combination of dryness and lower prices would certainly put a lot of farmers under stress.”

Much of the southern Prairies is abnormally dry with pockets of moderate and even severe drought, according to the Canadian drought monitor.

Drew Lerner, president of World Weather Inc., doesn’t see much relief on the horizon, at least in the short-term.

“We don’t expect to see enough precipitation to fall in the next two months to eliminate the drought,” he said.

There will be rain but it will be spotty and not plentiful enough to recharge depleted subsoil moisture. However, there should be enough moisture to promote seed germination and emergence.

The moisture profile will improve starting in late May or early June and that should continue throughout the summer, bringing relief to the drought regions, he said.

“I think it will be real dicey this spring but the summer rains should be sufficient to get the crop back into good shape,” said Lerner.

About the author

Comments

Markets at a glance

Copyright © 2019. All market data is provided by Barchart Market Data Solutions. Information is provided 'as is' and solely for informational purposes, not for trading purposes or advice. To see all exchange delays and terms of use, please see disclaimer.

explore

Stories from our other publications