Don’t get too cocky with canola.
Even though 2001’s small crop may make growers think they’re holding a knife to buyers’ throats, soy oil dulls their threat, say analysts.
That’s why many are urging growers to sell into canola market rallies, rather than hang onto the crop too long. The huge Brazilian soybean crop, which will arrive in the spring, will begin to push canola prices in the opposite direction to what many farmers expect.
“There are going to be some nasty sell-offs, even though we have tight supplies,” said analyst Errol Anderson of Pro Market Wire Report.
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Some companies have offered $8 per bushel delivered, which Anderson described as “the magic level that allows some growers to part with the canola.”
The price has recently slid more than 50 cents a bu., something many analysts peg on the linkage between canola and soy oil.
“It’s symptomatic of a market that doesn’t have control of its own destiny, because there’s too much competition in the world. We haven’t hit bottom. We’re still going to go down lower,” said Anderson.
The present slide is occurring even as farmers refuse to deliver. At this time of the year, deliveries are traditionally slow because farmers try to defer income into the next tax year. And this year’s crop is small, so there’s less to deliver overall. But analysts say canola delivery has been even slower than these factors can explain, suggesting farmers are waiting for higher prices.
Woody Galloway, the head of canola procurement for CanAmera Foods, said the canola market is already rationing buyers.
“Canola is not an entity to itself,” said Galloway.
“(Farmers) have held the product back from the market. The market’s slowed down the demand. It’s pricing itself out of the market now.”
Anderson said producers must realize that budget-wary export buyers leave the market once canola’s price exceeds a certain level. And domestic buyers will back away once canola gets too great a premium compared to soybeans and soy oil.
“Canola always has an Achilles heal, and that’s overvaluation,” said Anderson.
“We’re always fighting negative crush margins. The crushers are having a real problem with the lower cost of soy oil.”
Galloway said he thinks some growers are being unrealistic in assuming they can drive prices much higher by hanging on to the crop.
“They expect $8 per bu. because that’s what they saw in the summer, but back in the summer soybean oil was 19 cents (per pound). Now it’s 15 something,” said Galloway.
Reports that the Brazilian soybean crop is about 11 percent larger than last year will restrain the market, said Anderson. That restraint will last for longer than the summer, because even though the cheap Brazilian crop is usually depleted before the American crop is available, there may be enough this year to keep some available for longer.
He is urging growers to be cautious, but still sees good opportunities ahead.
“Canola has rebound capacity. There are going to be rallies for these guys, and there’s going to be good money to be made,” said Anderson.
“But it takes a marketing plan.”
If growers just wait until they need money to pay bills, or try to hang on for prices to peak, they’ll probably end up selling in the bottom third of the market because “they’ll sell with the masses.”
Strasbourg, Sask., farmer Ray Hilderman intends to sell his canola into coming rallies, following a marketing plan.
Hilderman, who is president of the Saskatchewan Canola Growers Association, hasn’t sold any canola from this year’s crop, though he sold some old crop in August for $7.70. He’s been moving other crops like peas, which have had good demand.
Hilderman said he always keeps in touch with market analysts so he knows how to design his marketing plan for the winter. But he said whatever the design of the plan, he has one piece of advice for fellow growers: “Have a plan.”
