Farmers have been getting rich with canola, and the crop hit the top of the agenda at Grainworld this year.
However, analysts warned farmers to be careful about their profit potential with canola for the next crop year because many bearish factors underlie the market.
“Basically, the market is screaming, ‘delivery your canola now,’ ” said Cargill analyst David Riemann, noting the strong inversion presently in canola prices. Early this week the May contract was $10 higher than July and and about $54 stronger than new crop November.
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“There’s nothing wrong with just selling today.”
Canola prices are high now and were extremely high a few months ago during the market rally inspired by the U.S. Midwest drought.
However, analysts said a number of factors could spell the end to aggressive buying by anxious processors: the huge South American soybean crop soon to hit the market, massive Asian palm oil harvests that keep increasing and a rebound in U.S. soybean production this year.
Aaron Brown of Toepfer noted the relative strength of Canadian canola and U.S. soybean futures prices compared to other world oilseed crop futures, with canola rising 14 percent in 2012-13 and Malaysian palm oil falling 23 percent. He said it is a reflection of tightness that might loosen this coming crop year.
A decent Canadian canola crop might still leave ending stocks at only nine percent of use, but it is much more comfortable than the present prediction of five percent stocks-to-use at the end of 2012-13.
Reimann did not offer a market prediction. Instead, he focused on pegging the greatest risk to farmers, which is historically high prices that many might be taking for granted. Those prices could easily fade if the Northern Hemisphere produces big crops this summer.
“We’re at some unbelievably high (price) levels in canola,” said Reimann. “Is the oilseed supply about to change?”
He said the inversion in canola futures markets, with nearby prices far higher than prices a few months into the future, provides farmers with little reason to hoard old crop canola. It also suggests farmers consider protecting new crop prices.
Locking in prices now and using call options contracts is a good idea for farmers who want to protect today’s forward prices and have a chance to gain in a possible future rally, he added.
Put options can be used to protect against the downside.
Most farmers might still think of canola as their big moneymaker, but poor canola results and strong wheat yields last year prompted many of them to return their attention to the oft-neglected cereal.
That is expected to lead to fewer canola acres this spring, said FarmLink Marketing analyst Brenda Tjaden Lepp.
She recently released her firm’s acreage predictions for the coming crop year, which show a seven percent decline in canola acres to 20 million and a 3.2 percent increase in spring wheat acres to 17.5 million.
