Canola growers who had been holding back some of their crop hoping prices would take a big jump this summer probably made the wrong decision.
Last week’s report from the United States Department of Agriculture, raising American soybean area by two million acres, sent oilseed prices tumbling. And analysts say that barring dramatic crop developments, that should keep the lid on canola prices throughout the summer.
“Those producers that were hanging on waiting for $10 a bushel, I don’t see that in the works,” said Lyndon Peters, oilseed analyst for Agriculture Canada. “It’s very difficult to see us getting anywhere close to that at this point.”
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Paul Cassidy, president of Mitcon Ltd. of Calgary, said the inverse futures market, with prices dropping in successive months through July, August and September, sends a clear message to growers.
“Inverse markets are a signal to producers that they shouldn’t be carrying inventory and unfortunately I think they ignored the signals this year.”
Cassidy thinks there is potential for a $10 a tonne decline in new-crop values, down to the $329 a tonne range. Based on a July futures of $360 and a basis of around $20 a tonne, the current farmgate cash price is around $340 a tonne (about $8 a bushel).
Peters said farmers with stocks to sell over the next couple of months should look for spikes in the market, arising from weather scares or short-term demand from exporters or domestic crushers needing seed to meet sales commitments.
“I would say just look for a good basis at this point, but certainly the general trend we’d be expecting between here and new crop is downwards.”
Peters is projecting an average price during 1997-98 of $380 to $420 a tonne (basis Vancouver cash market), compared with $440 a tonne in 1996-97.
The larger than expected U.S. soybean acreage is the main price-depressing factor at work in the market. The USDA says soybean area is up 10 percent from last year to 70.9 million acres, the largest seeded area since 1982. Some traders are projecting record yields based on current conditions.
As well, U.S. processors are importing Brazilian beans to cover their short-term needs, eliminating another potentially bullish factor.
Peters said despite last week’s big price drop, there is still solid world demand for oilseeds and that should support prices as the year progresses.
“I would expect we’ll hit some pretty low harvest lows, but we do still have strong world demand for oilseed commodities, so once the trade gets over this idea that we’re going to have a record U.S. soybean crop and they start focusing back on the strong pace of demand, we should see a strengthening as demand chews through some of those record supplies.”
Domestically, the June 27 report by Statistics Canada estimated canola area of 12.1 million acres, up 38 percent from 1996.
Based on the long-term trend yield of 23.6 bushels per acre, and a harvested area of 11.8 million acres, Peters said that would produce a crop of 6.34 million tonnes. That’s up from the previous estimate of 6.14 million tonnes.
Projected ending stocks at July 31 have been revised to an extremely tight 470,000 tonnes from 503,000, due to a downwards revision in the 1996 crop output to 5.0 million tonnes.
