Canola is supposed to be the lame duck crop this year.
Well, that duck isn’t looking so lame right now, with canola prices having rallied for about two and a half months.
A number of analysts think the duck might soon run out of flap.
“Canola’s already getting up there in terms of the U.S. dollar,” cautioned Ken Ball of Union Securities in Winnipeg.
“Canola’s done very well to get here and it doesn’t mean that it can’t go higher – it probably can – but it’s already starting to get pretty lofty.”
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U.S. corn has been the runaway price success story of this autumn, dragging wheat, barley and other cereal grain prices with it, but Winnipeg Commodity Exchange canola prices have also followed roughly the same path, and have so far escaped the price weakening that’s taking place in barley and wheat.
Canola prices avoided being brought down by slightly lower Chicago Board of Trade soybean prices last week, although weaker soybeans might be a grim harbinger for canola.
That’s especially true in light of canola’s exhaustion after cracking a recent ceiling on prices.
“We managed to break through long-term resistance on the continuous canola contract at $357.50 per tonne, but were unable to make any gains after this,” Ag Commodity Research said in a market report.
“This, too, lends credence to the idea that in spite of optimism that grains and oilseed prices can push higher into 2007, a short term correction in canola is past due. With canola prices now trading at $67 (US) higher than the CBOT, a move lower remains likely in the near term.”
Most analysts still predict stable prices for canola over the winter, even though stocks are relatively high.
Reports from the countryside suggest farmers are buying lots of canola seed, so 2007 new crop prices are apparently high enough to spur farmer interest.
But there are many wild cards in the canola game that will determine which way canola prices go.
The failed Australian crop takes a major competitor out of the market, but it’s unclear whether Canadian canola can simply take the markets Australia can’t supply.
For instance, Australia’s own crushers may run short of canola seed if exporters keep shipping out their own crop. Canadian canola seed could fill those needs in Australia, but Australia has tough restrictions on genetically modified canola.
Canola industry sources say the Australian government may soon announce that it will allow Canadian canola into Australia to meet crusher needs.
Others speculate that Australian canola exporters may keep their canola home, but buy Canadian canola to supply their own overseas customers.
“It’d cost money but it would maintain relationships,” said Ken Ball of Union Securities in Winnipeg.
“It’s certainly opened up some markets.”
The European Union also restricts the import of GM canola seed, so
Canadian canola might have trouble grabbing that lucrative demand.
Another wobbly factor in the canola outlook for 2007 is biodiesel demand. Corn has been driven sky high by real world ethanol demand, but the bio-diesel premium in canola, which many analysts believe can now be seen, is mostly based on the potential for biodiesel demand, not on actual immediate demand.
Demand in the spring will be key to the size of the 2007 canola acreage in Canada, analysts say, because without real demand appearing to support prices, the heavy stocks left after the winter, the second highest on record, could push new crop prices down and convince farmers to plant something else.
