Prices hit $15 per bushel last week in Saskatchewan, and analysts think there’s room for them to go up a little more yet
Canola prices may have a little life yet, according to a market analyst.
Canada’s export program has been sensational and demand will eventually outstrip supply of the commodity, said Marlene Boersch, managing partner of Mercantile Consulting Venture.
“We will need price rationing in this ongoing calendar year,” she told delegates attending the virtual annual meetings of Saskatchewan’s crop organizations.
Canola was already trading at $15 per bushel in Saskatchewan last week, which is a “very profitable” level for the crop.
Boersch said $15 is a price that is certainly worth considering. Nearby futures prices haven’t been this high since April 2012.
“If you look at how far we have already gone with price appreciation, it begs the question — how much further you can still go?”
She thinks the answer is a little bit yet. However, she reminded growers that trying to pick the absolute peak of the market is a fool’s errand.
The reason prices are sky-high has a lot to do with this year’s “extraordinary” export program.
Canada shipped out 4.2 million tonnes of the oilseed through week 22 of the 2020-21 marketing campaign. That is 1.5 million tonnes higher than the same time last year.
If that pace were to be maintained, Canada would end the year with 12.6 million tonnes of exports. That isn’t going to happen. Boersch is forecasting 10.2 million tonnes, which is where the demand rationing comes in.
The European Union has been Canada’s top customer, importing 1.02 million tonnes of the crop between Aug. 1 and Nov. 30. She doesn’t expect demand from that market to subside.
China is the next biggest buyer with 932,023 tonnes shipped to that destination. Japan rounds out the top three with 828,732 tonnes of purchases.
Domestic crush has been robust as well with margins in excess of $100 per tonne. Crushers would consume 10.4 million tonnes at the current pace, but Boersch thinks it will be closer to 10.2 million tonnes because of the dwindling seed supply.
Crusher bids show they are covered into March but not for April and May, suggesting the next pricing opportunity could be in the March-April time frame.
Canola prices are also being lifted by soybean markets, which are “on fire,” said Chuck Penner, analyst with LeftField Commodity Research.
The U.S. Department of Agriculture dropped 2020-21 U.S. ending stocks to 3.8 million tonnes last week, down from 24.7 million tonnes two years ago.
Soybean prices have been on the rise almost everywhere around the world, except for Western Canada because of the dismal soybean basis in that region.
“It just sucks, frankly,” said Penner.
Soybeans from Eastern Canada have been flying out the door, but Chinese demand has not been pulling beans out of the Canadian Prairies.
“We’re kind of stuck with these soybeans right now,” he said.
At some point those soybeans will start moving. Penner said the canola basis usually improves in the April-May period, so perhaps that’s when soybean sales could pick up.
Sales have not been a problem for canola. Carryout is expected to fall precipitously to 1.2 million tonnes in 2020-21 from 3.13 million tonnes last year and 4.44 million tonnes the year before that.
Boersch noted that those are Agriculture Canada’s numbers and it has a tendency to overestimate carryout. It was forecasting 4.5 million tonnes of carryout for 2019-20 as late as October last year.
“That may lead farmers into selling product too early. Make sure you scrutinize the numbers,” she said.
Whatever the final number is, ending stocks are going to be extremely tight. Boersch anticipates an increase in canola acres in 2021 on those farms where it is possible given their current rotations.