Supply is irrelevant.
Demand is the only thing that counts now, say some traders about why the markets did not move on surprises contained in Statistics Canada’s final report on the 2010 crop.
“Supply in canola just isn’t the issue, and it never has been,” said Ken Ball of Union Securities in Winnipeg about the 11.87 million tonne estimate for the size of the canola crop. Trade estimates in a Reuters survey averaged 11.2 millon tonnes.
As long as users keep buying lots of prairie crops and investors keep wanting to put money into hard assets like agricultural commodities, crop prices will not be affected by bearish supply news.
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“There’s just too much under this market right now,” said Errol Anderson of Pro Market Communications in Calgary.
“Inflationary thinking and demand from buyers is just overwhelming.”
However, at some point those bearish canola numbers might come back to bite exposed farmers, some say.
“This really influences spring numbers and does suggest to me that canola prices might not hold,” said Anderson. “It could surprise the grower in the spring.”
The barley number was the other big surprise, coming in at 7.61 million tonnes compared to an average trade guess of 8.2 million tonnes. That was not a big shock to prices because of the large amount of feed quality crops in Western Canada this winter, some analysts said.
The Canadian wheat crop was boosted to 23.17 million tonnes from the September estimate of 22.21 million, but the market expected that. The flax crop estimate decrease to 423,000 tonnes from 537,000 surprised many. There is little available data on flax other than StatsCan, so the finding is considered significant.
Crop markets are supported by the bullish outlook of many investors about hard assets, said Ball and Anderson.
“Canola is not at $555 per tonne because of supply issues,” said Ball.
“We have lots of canola and we’ve known that for months.”
Farmers are now benefiting from that bullish view of investors, but when that view changes, prices could slump.
When this turns around, it could happen fast,” said Anderson.
