The soybean contract has shot through the $10 per bushel mark at the Chicago Board of Trade and has dragged Winnipeg canola partly along with it.
But canola keeps falling behind soybeans, becoming ever cheaper in comparison and disappointing farmers, traders and the industry.
“Winnipeg is not tracking Chicago,” said RBC Investments trader Tony Tryhuk.
“That doesn’t bode well for the Canadian market’s upside potential.”
This winter Chicago soybeans have strongly increased in value, with no signs of topping out yet.
No canola seller is going to complain about the price getting better. But canola prices keep falling below expectations, meaning that while soybean sellers have been getting higher prices recently, canola sellers have had to accept smaller gains.
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Ag Commodity Research analyst Nolita Clyde said canola is still able to rise, but is likely to stay sluggish compared to soybeans.
“We’re going to follow them higher, there’s no doubt,” said Clyde on March 22.
“The question is: how much higher can we follow them?”Many analysts are mystified why canola has performed so poorly this year. Stocks are expected to be tight at the end of the year and Japanese and Mexican demand has appeared as expected.
But throughout the year farmer deliveries of canola have been heavy, even in the face of market analyst suggestions that farmers hang on to canola until it begins catching up to the gains in soybeans.
Clyde thinks the heavy deliveries are a sign that the crop is bigger than Statistics Canada has reported.
By July 31, Statistics Canada expects canola stocks to have fallen to less than 300,000 tonnes, but if stocks are getting that low, recent farmer deliveries of about 200,000 tonnes per week don’t make sense.
“There’s canola coming out of the woodwork,” said Clyde.
“Something doesn’t give. There’s something wrong somewhere.”
Clyde thinks the Dec. 31 stocks report was wrong in forecasting a smaller crop than the industry expected after harvest. It is probably larger than expected, which explains the healthy farmer deliveries. It also explains why grain companies and processors haven’t had trouble getting supply and aren’t driving prices up.
“Most people are pushing their stocks numbers back up,” said Clyde.
She now expects ending stocks to be about 515,000 tonnes.
Tryhuk said canola prices have been held in check by the lack of buying by poorer nations such as China and Pakistan. So far the main buying has been by the Japanese, who have a predictable demand. To push prices higher, more “price sensitive” buyers have to jump aboard.
Clyde said an off-base Dec. 31 stocks report wouldn’t have hurt everyone. It would have hurt canola buyers, who ended up paying more than the market would have brought if stocks truly were bigger than reported.
But farmers would have been receiving prices that were better than would have been expected.
“It’s a good time to be a canola farmer,” said Clyde.
So long as soybeans can keep surging higher, canola has the technical opportunity to keep gaining, she said. If canola stays above the former line of resistance of $437.50 per tonne at the Winnipeg exchange, it could keep rising toward a more permanent line of resistance at $459.
“If Chicago keeps going, I think we can keep following them,” said Clyde.
