Statistics Canada is predicting that Prairie farmers will produce a record canola crop of 13.2 million tonnes in 2011. But this kind of supply data will have little impact on canola prices, said Errol Anderson, a commodity broker at Pro-Market Communications in Calgary.
The sickly global economy and fears of another recession will determine canola prices in the short and medium term, he said.
“I think a bigger factor … is the global financial situation.
“I think there are more problems coming in the equity world and I think the credit markets are going to tighten up…. That’s why I’m a little bit (concerned) about grain prices…. So we’re focusing more on that, than on actual supply and demand numbers right now.”
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As an example, Anderson said oil prices are usually a barometer of confidence in the American and global economy. Over the last two months, due primarily to concerns over the debt crisis in Europe and the sluggish economic recovery in the United States, West Texas crude prices have dropped from more than $100 a barrel to trade at about $85 per barrel.
If that trend continues, it doesn’t bode well for commodities like canola.
“If oil prices decide to go below $80 per barrel, that’s a real game changer.” He said if that happens, canola prices will fall due to pressure from the global economy.
While Anderson may question the significance of the data, Statistics Canada released its latest crop production figures Aug. 24. Based on farmer surveys done in late July, Canadian growers will produce 13.193 million tonnes of canola in 2011, up 11.2 percent from 2010. StatsCan estimated the harvested canola area at 17.8 million acres, with an average yield of 32.3 bushels per acre across the Prairies.
The canola estimate was slightly lower than market watchers anticipated, but the figure wasn’t significantly different from expectations, said Jon Driedger, an analyst with Farm Link Marketing Solutions in Winnipeg,
The wheat estimates came in higher than expected, but the gap wasn’t large enough to have a significant impact, Driedger said.
“For the major crops, there weren’t any major shocks,” he said.
However, market analysts did notice the estimates for flax in the Stats Can report. Canadian flax production is pegged at 365,000 tonnes this year, which is 13.7 percent lower than the 2010 crop of 423 million tonnes.
Although he discounts the importance of market fundamentals and spends more of his time analyzing the potential impact of global financial conditions, Anderson said back-to-back years of small crops should support flax prices.
