Oilseed markets are having a bird over the avian flu outbreak, but Canadian analysts say the flap shouldn’t distract canola growers from an improving outlook.
“I don’t think this avian thing will hold canola back,” said Winnipeg grain market analyst Brenda Tjaden Lepp.
“Canola historically has demonstrated an ability to rally independently.”
Analysts say the perfect foundation has been laid for a strong old-crop canola rally.
Statistics Canada reported last week lower than expected canola stocks as of Dec. 31. There has been heavy demand for canola and prices are low compared to soybeans.
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Combined with high world demand for vegetable oils, canola has a terrific end-of-year outlook.
“We’re certainly expecting oil will potentially go much higher yet, and canola remains… preposterously low and absurdly low,” said Ken Ball, a broker and analyst with Benson Quinn-GMS.
“Growers have been moving a lot of canola, but supplies are declining faster than people thought and we’re heading for a relatively tight carryout in canola.”
World oilseed markets have been jittery since avian flu began sweeping through Asian chicken barns, causing farmers to depopulate large chicken operations.
About 25 percent of the meal fed to chickens in large Asian operations is soybean meal, so soybean traders have been alarmed by the prospect of less Asian demand for American and Brazilian soybeans.
Asian crushers are likely to cut back on soybean imports because they are worried about not being able to sell the meal.
Canola could be affected if soy meal demand is substantially affected, analysts say. But the impact will probably be neutral to positive.
That is because as Asian crushers reduce production, a deficit will build in vegetable oil supplies that will have to filled by imports.
If more soy oil is imported, that will drive up soy oil prices, helping to lift canola oil prices.
Since canola has a greater proportion of its value in oil as opposed to meal, its price should rally.
“If it supports oil, it supports canola, in theory,” said Statcom Ltd. canola market analyst Nolita Clyde.
Most analysts feel the panic over avian flu is overblown.
“You’re going to have to kill a lot of birds to make a dent in worldwide meal demand,” said Clyde. If the outbreak is soon controlled, the impact on demand could be slight.
“Chickens can be easily replaced. Their life cycle is fairly short.”
Tjaden Lepp said prices have been rising for all of the oilseed complex in recent months, so news about problems caused by avian flu fits nicely into the market’s desire for a price correction to the increases. But that doesn’t mean the market has turned lower.
“It feels to me like a little bit of backing off in an overall uptrend,” said Tjaden Lepp.
Underneath the uproar over avian flu, a quieter story is being told about canola’s potential and that’s what farmers should be listening to, analysts say.
“As a farmer I would hold on to my canola and not sell a thing now,” said Tjaden Lepp.
Statistics Canada found smaller than expected prairie supplies of canola in its Dec. 31 stocks report released last week. Clyde said about 49 percent of the prairie canola crop has been used now, compared to about 39 percent last year at the same time and a three year average of 41 percent.
Analysts say heavy grower selling has emptied many bins and crushers are trying to entice more producer sales because they are scared of running out when canola prices pick up.
Various crushers are offering $10-under basis levels to attract sales, but Tjaden Lepp said farmers shouldn’t agree to basis contracts now in which they have to lock in the canola futures price.
“We could have a $30 per tonne price rally.”
Historically canola’s value is about 120 percent of the value of the same weight of soybeans. Now it is trading at only about 95 percent of the soybean value, so there’s room for optimism.
“We’ve got a long way to go up,” said Tjaden Lepp.
