Disappointing crop Heat, wind and disease have slashed supply and analysts expect demand rationing
Analysts think canola could rally along with soybeans in the coming months, given the steadily eroding supply.
Charlie Pearson, Alberta Agriculture crops market analyst, said there won’t be enough canola to meet the demand in 2012-13.
“We’re just trying to sort out how tight tight is,” he said.
Analysts had forecast 16.4 million tonnes of canola before farmers started harvest and discovered extensive disease, heat and wind damage.
Pearson believes the crop has shrunk to 13 million tonnes, well below Statistics Canada’s July estimate of 15.4 million tonnes.
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His estimate is in line with that of Weber Commodities, which forecasts 13.1 million tonnes. Others are much higher. Oil World predicts 15 million tonnes, while FarmLink Marketing Solutions sees 14.7 million tonnes.
Statistics Canada will release its new estimate Oct. 4, which is past The Western Producer’s publication deadline.
Pearson said there will have to be demand rationing. Crushers want more than seven million tonnes while exporters could easily take eight million tonnes.
There is also potential for canola to ride soybean’s shirttails as that oilseed heads toward what some analysts think will be another rally.
Oil World said soybean prices could reach $20 per bushel in the next few months preceding the South American harvest, shattering the previous record of $17.95 set Sept. 4.
Pete Meyer, agricultural commodity analyst with PIRA Energy Group, thinks that is feasible despite reports of higher-than-expected U.S. soybean yields.
“Can (soybeans) get to $19? Yeah. Will they get to $20? I think it’s going to take a long time,” he said.
Meyer recently scouted fields to check reports that late summer rain added bushels to the U.S. soybean crop.
He thinks the U.S. Department of Agriculture yield estimates are where they should be in Iowa and Illinois but too low in some of the northern tier states.
“In Minnesota, the bean numbers are off the charts. It’s just absolutely unbelievable. I never saw it coming. It’s an absolutely fantastic bean crop,” said Meyer.
However, Minnesota, while the third largest soybean producer, has only nine percent of the seeded crop. If it were to add even 20 bu. per acre to the yield estimate, that’s only 140 million more bushels, which the market can easily absorb. China appears to have an insatiable demand for U.S. soybeans.
“I don’t think that’s sustainable. We just don’t have the crop to meet China’s demand,” he said.
Meyer believes prices will start rebounding as soon as the third week of October and could reach a new high in the March futures contract in January or February.
However, prices for the May, July and August soybean futures contracts are all in the $14 to $15 range because analysts expect a massive South American soybean harvest. Meyer notes those forecasts are based on ideal weather.
He is certain canola will participate in the anticipated short-term soybean rally because U.S. crushers have told him they’re eyeing up canola when they run out of soybeans.
“I definitely think that there is going to be some upward pressure on canola prices as well when the bean market turns around.”
Pearson said his only reservation on getting too bullish on canola is that soybean rallies have been driven by the meal market while the vegetable oil market, which has a greater impact on canola prices, has been ho-hum.
“That is perhaps the one fly in the ointment,” he said.
Peterson’s key message to growers is to start establishing target prices where they are willing to sell canola, such as marketing a portion of the crop the next time prices reach $14 a bu.
“It could blast right through $14, but just have some discipline.”
Growers concerned about cash flow or spoilage should sell if they can lock in a good basis.
Those with a bullish outlook may want to consider buying calls or using other marketing tools.
“They don’t necessarily have to keep it in the bin to participate in higher prices,” he said.
