The next few weeks may be dreary for canola prices, but the winter is
offering hope for a return to strong prices this crop year and next.
Market analysts say farmers should be careful not to allow this year’s
high market prices to slide by, leaving them long on crop and short on
luck next year.
Errol Anderson of Pro Market Communications said producers shouldn’t
panic about recent price weaknesses.
“I’d wait until the new (calendar) year and then take a good hard look
Read Also
Vegetable oil stocks are expected to tighten this year
Global vegetable oil stocks are forecast to tighten in the 2025-26 crop year, this should bode well for canola demand.
at prices.”
Anderson expects a short-term slide in canola prices as American
soybean producers, keen to pay some bills, push newly harvested crop
onto the market.
But he expects that by November new demand will fuel a recovery in
vegetable oil prices. The real rebound for canola will come in the
winter months, when buyers will have to bid higher to pry scarce crop
out of producers’ hands.
If little snow falls on the Prairies, canola prices could climb.
“All of a sudden there’s going to be strength in these crop prices.”
That will also apply to prices for the 2003-04 crop.
Right now, next year’s canola crop is trading at a $50-$60 per tonne
discount to the 2002-03 crop on futures markets. That’s because the
market expects an average crop.
Anderson said farmers probably won’t suffer by waiting until January to
start pricing the 2003-04 crop.
Tony Tryhuk, manager of commodity trading for RBC Investments in
Winnipeg, agreed that holding off pricing for 2003-04 will allow the
discount to shrink.
Unless there are good soil moisture conditions that would entice
growers to plant canola, buyers will have to sweeten canola prices.
Right now, wheat and barley prices and growing conditions are more
attractive.
“The message that is being sent by those (2003-04) prices is to not
plant canola,” said Tryhuk. “It says plant grain instead. Our market is
going to have to buy acres.”
Tryhuk sees signs of strengthening canola prices in the winter. Buyers
were hoping last week to see prices fall below $418 per tonne, but it
didn’t happen.
“The producer really holds onto his product fairly tightly. He doesn’t
panic on the setbacks,” said Tryhuk. “I think you’ll have to pay the
producer $9.50 a bushel in order to get the next round of selling.”
Basis levels also appear to be narrowing over the winter months.
Right now basis levels in Manitoba are about $30 under, but it tightens
up for January and March.
Buyers “are sending the signal to the producer that ‘I don’t need your
production now, I need it later.’ ”
While he thinks there is good potential for 2003-04 prices to rise
closer to 2002-03 prices, Tryhuk urges farmers to take advantage of
good prices this winter for their 2002-03 crop.
About one million tonnes of canola were carried through into the new
crop year even though last winter offered excellent prices.
But those who held on did well as prices climbed in the new crop year.
The strategy might not work again if, by next spring, there are
forecasts of a huge canola crop, or big production of other oilseeds
around the world.
Two years ago farmers hung on to two million tonnes of canola from one
crop year to the next, giving up $8 per tonne between the old crop and
new crop.
“Even though the signal is there, the producer doesn’t necessarily
react,” said Tryhuk.
If there is decent winter and spring moisture and canola acres
increase, Tryhuk said beginning to price the 2003-04 at “over $8 a
bushel is not bad.”
Ken Ball of Benson Quinn GMS said some growers have already sold
futures at $385 per tonne for 2003-04 and even though that’s lower than
prices right now, “it’s still an attractive price.
“If we get a good crop next year, we probably won’t see prices that
high.”
Ball said the next few months will witness the fight between canola
sellers who hope to push this year’s rally into next year, and buyers
who want to begin 2003-04 with a bigger, cheaper crop.
