WINNIPEG — One might expect the dropping Canadian dollar to spur an increase of foreign buying of canola, but the truth may not be quite so simple.
Conventional wisdom holds that buyers in other countries should find canola more attractive now that the loonie is sitting at a 12-year low relative to its U.S. counterpart.
However, one analyst notes other countries’ currencies are also weakening.
“It doesn’t necessarily make Canadian product cheaper if the guy buying it is in a country whose currency is falling faster than our dollar,” said Mike Jubinville of ProFarmer Canada.
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Another issue facing canola is the turmoil in the Chinese market, where economic growth is slowing and where the government is allowing the currency to spur its exports.
Some analysts feel the uncertainty could slow Chinese demand for canola dramatically, but Jubinville is confident they will keep buying when they see prices they like.
“They’re going to pick their spots. And they won’t chase the market higher, knowing there’s a range of veg oil out there,” he said.
Exporters are saving money with the cheapest ocean freight costs in recent memory.
However, Jubinville says there are two ways to read that.
“In one sense, though, whenever there is an excess of shipping capacity, it mean the global economy isn’t great because no one is trading anymore,” he said.
“But it does make the ability for Canada to compete in distant marketplaces and still maintain a competitive bid in the market.”
Canola futures have been trading in a range between $465 and $495 per tonne since the end of summer.
Canola has also found support in the form of large fund buying and reluctant farmer selling, said Wayne Palmer, lead analyst for Agri-Trend Marketing in Winnipeg.
“Farmers want over $11 a bushel ($485 per tonne) for old crop canola. If you got over $500 per tonne you would have a lot of producers selling,” he said.
Farmers would sell more if the price was higher, but producer deliveries into the grain handling system are strong. To Dec. 20, they delivered 7.19 million tonnes, up from 6.51 million at the same point in 2014-15 and 5.94 million in 2013-14.
A canola price rally is unlikely. Palmer said the spread between canola and soybeans is becoming a problem.
“You just can’t have beans going lower while canola goes higher. End users will look for another product to crush than canola. Either the beans have got to catch up or the canola values have to drop off,” said Palmer.
The USDA is scheduled to release a host of key reports Tuesday, including:
• final 2015 U.S. production estimates
• updated supply-demand balances for the United States and the world
• quarterly grain stocks
• the first estimate of U.S. winter wheat acreage
Jubinville said this is typically the USDA’s largest data release of the year and has the potential to move markets.
“It could add some gyration potential to the marketplace,” he said.
“For now, in my opinion, we’re in a range-bound market: nothing trading up, nothing trading down.”
