Many analysts expect canola acreage to decrease this year.
An average of a Reuters poll of analysts conducted in early January put the decrease at 8.5 percent.
The average was 19.7 million acres, with the lowest estimate at 18.5 million and the highest at 21.2 million.
That would still be the second largest area ever, but it would mark the first time since 2001 that acreage dropped from the previous year.
However, with Canadian and global canola ending stocks expected to be exceptionally tight, you have to wonder if the market will be OK with farmers cutting acreage or if prices will rally to encourage more seeded area?
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Agriculture Canada, using Statistics Canada’s production data, forecasts that Canadian canola stocks by year end will fall to a bare bones 350,000 tonnes, down from 728,000 tonnes in 2011-12 and 2.2 million the year before.
Some analysts believe Statistics Canada has under-reported the size of the canola crop, but it’s the only hard number the market has available.
World stocks are also expected to be exceptionally tight.
The U.S. Department of Agriculture expects global rapeseed stocks will fall to 2.8 million tonnes by the end of 2012-13, down from 5.08 million in 2011-12 and 7.01 million the previous year.
Canola prices are strongly influenced by soybean prices. The expectation of a huge South American soybean crop, as well as rising palm oil stocks, pressured oilseed values down through the late fall and early winter.
Those factors now appear to be mostly priced into the market, and there has been a slight rally from the lows of mid-December and early January.
Year-end global soybean stocks are expected to climb by only eight percent, even with the big South American crops, and the stocks-to-use ratio is expected to recover only to 22.6 percent from 21.5 percent last year.
The U.S. domestic soybean stocks-to-use ratio is expected to be an incredibly tight 4.4 percent.
Most analysts expect more corn acres in the United States this spring, but they also expect more soybean acres.Private analyst Informa expects U.S. soybean area to rise to a record 78.78 million acres, up two percent from last year.
If we assume Canadian canola area does fall to 19.7 million acres, that would be a decrease of 1.8 million acres.
What could take those acres?
Based on the Minneapolis December spring wheat futures, the outlook for new crop wheat is 16 percent higher than it was at this point last year, compared to a 9.5 increase for canola.
The stronger price and increased familiarity with the new open market in wheat favours that crop.
The average forecast on wheat from the Reuters poll was that Canadian wheat area would increase by a million acres.
As well, the recent increasing popularity of corn and soybean in Manitoba means they too will likely gain at canola’s expense.
But still, is an 8.5 percent canola acreage decline possible?
Remember, Bunge’s crushing plant expansion at Altona, Man., is due to open in the next few months and the Richardson expansion at Yorkton is due to be complete late this year, so domestic demand will be up for the 2013-14 crop. Also, China’s demand rises each year.
To lessen their risk, I think buyers in the months leading up to seeding will price canola appropriately to prevent a serious acreage decline.
