WATROUS, Sask. – It wouldn’t be far from the truth to say Canada’s canola production has grown exponentially in the last two years. The 1994 crop that will likely be logged between 7.2 and 7.4 million tonnes, is up nearly 25 percent from 1993’s 5.5 million-tonne crop and nearly double 1992’s crop.
With an increase in production of that magnitude, supply and demand would normally dictate prices must go lower in order to move all that ‘extra’ crop.
Except, all that canola doesn’t amount to that much extra when it’s poured into the total supply of oilseeds in the world. And global demand for oil – be it soybean oil from the U.S., palmoil from Malaysia or sunflowerseed oil from Europe – has never been better.
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What that means for farmers is prices of all oils are being driven by demand, says Larry Ruud, an independent market analyst with Market Maximizer Inc. in Sherwood Park, Alta.
“Normally, a canola crop of 7.2-7.4 million tonnes would be significantly bearish if demand were stagnant,” he told a meeting of the Saskatchewan Marketing and Production Clubs here last week.
Not only has China emerged as a dark horse buyer, but buying from the European Union, Mexico, the United States and Japan is strong, putting solid fundamental footings under $400-per-tonne Winnipeg futures prices.
Basis levels have started to narrow in the last two years, Ruud said, which is another sign of the positive impact a healthy domestic crush of 2.5 million tonnes is having on prices.
Ruud said canola growers are looking at a basis of about $40 per tonne under nearby Winnipeg futures prices. That’s a good $25 a tonne less than usual at this time of the year. “There’s a real premium in the spot cash market.”
Another way to track the relative strength in canola prices is to keep an eye on soybean oil futures in Chicago. After dropping to 22 cents (U.S.) a lb. in September, soyoil is trading very close to 29 cents a lb.
“Soyoil is the leading indicator of canola prices,” Ruud said. Every one-cent change in soyoil futures prices translates to a $12-$13 per tonne change in canola cash or futures prices, he said.
Soyoil has become important because Canadian canola is competing, successfully, against soyoil in the U.S. market.
Ruud said canola’s share of the U.S. oil market was close to six percent of 20.6 billion lbs. in 1993, compared to just half a percent of 17 billion lbs. in 1987.
