With a record-smashing canola crop in prairie farmers’ bins, it is a good thing that other factors in the world oilseed sector are supporting the market.
But don’t expect a sustained rally to build this crop year, said Greg Kostal of Kosta Ag Consulting while speaking to farmers at a CGF Brokerage and Consulting seminar in Saskatoon Dec. 5.
Statistics Canada’s November production report released last week put the 2008 canola crop at 12.6 million tonnes, up by almost a third from the 9.4 million tonnes produced in 2007, the previous record.
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China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
Analysts expected a big canola crop, but the Statistics Canada number was at the top end of their forecasts and it helped to pressure Winnipeg canola futures lower Dec. 5, the day the report was issued.
The size of the crop is a challenge, but at least the situation is not as bad as in wheat, which was produced in record quantities worldwide this year.
The world oilseed market, dominated by soybeans, is not as oversupplied as wheat. South American soybean farmers struggling with access to credit might produce a smaller crop. Also, crushing plants now under construction in Canada promise to provide a new source of domestic demand for canola in 2010, Kostal said.
However for this crop year, canola will need to find a price that encourages exports to non-regular buyers. In the early part of this decade, canola surpluses were disposed of when low prices attracted large Chinese demand.
That has to happen again, said Kostal.
“It takes a year or so of sideways (price movement.) It has got to be sustained cheapness in relation to soybeans to keep blowing it out to China.”
If exports are strong enough to avoid huge canola stocks at the end of the crop year, 2009-10 could see stronger prices, particularly if crude oil prices rise, stimulating more biodiesel demand globally. In the meantime, farmers should jump on any small rally of $20 to $30 a tonne to reduce inventory and generate cash flow.
Wheat is another story. Kostal called it a ball and chain weighing down the market.
Canada produced a wheat crop 43 percent larger than last year. The world crop is estimated at 683 million tonnes, up 12 percent from 2007 and year-end stocks are expected to climb 27 percent to 150 million tonnes. The major exporters, Canada, the United States, European Union, Australia and Argentina, are expected to hold 44 million tonnes of stocks, up from 29 million last year.
Last year Russia and Ukraine had bad crops and cut off exports to keep a lid on domestic prices. This year they have a huge crop that they can’t export fast enough.
“Supplies in the hands of the exporters are huge. In one year you have gone from a sellers’ market to a buyers’ market,” Kostal said.
Barring a weather catastrophe somewhere, he does not see wheat prices strengthening and believes the Canadian Wheat Board’s pool return outlook could fall $20 to $30 per tonne this year.
“When you have one commodity that is heavy, it creates challenges for every other commodity,” he said.
For example, relatively good supplies of corn and soybeans mean the spring seeding battle in the United States in 2009 is likely to be mild compared to last spring. And wheat’s weak price will allow American farmers to shift even more area into corn and soybeans.
Statistics Canada estimated the barley crop at 11.78 million tonnes compared to 10.98 million last year.
The larger crop is encountering demand problems. Last year Canada exported about 1.7 million tonnes of feed barley. This year Kostal thinks it will be closer to 300,000 tonnes.
Domestic livestock feed demand is also down because of the economic problems cattle and hog producers are suffering from U.S. country-of-origin labelling, exchange rates and high feed costs earlier in the year. Kostal expects domestic feed consumption to be 1.5 million tonnes lower.
Prices for all crops are struggling against a weakening world economy, a negative outlook among investors and larger supplies of some crop commodities.
Even bright spots like lentils, which because of weather problems elsewhere meant Canada became the only source of supply, can’t stay high in the face of so many negatives, he said.
Traditionally, charts of grain market rallies show a steep price climb over a short time to a sharp peak that triggers extra production. This causes prices to unwind into a wide saucer shape over a longer period while supply and demand get back into balance.
Kostal thinks that trend might be altered by the introduction of the biofuel industry.
“We have built up biodiesel and ethanol infrastructure so that when and if commodities get cheap enough to be a substitute to the price of energy, we can turn the tap on and in three to six months solve the problem.”
