Canola can’t get itself invited to the big soybean party in world markets.
Each time soybeans attract world traders’ attention with some new bullish news, canola tries and fails to draw the same eyes.
“This seems to be an extreme,” said Tony Tryhuk, a commodity broker with RBC Investments.
“We’re undervalued. I think we’re cheap.”
Soybean prices jumped back above $10 US per bushel last week on fears that soybean supplies were falling even shorter than most analysts had predicted.
The leading vegetable oil market news source, Oil World magazine, reported recently that world soybean stocks would fall further than expected this crop year, leaving a 10 million tonne deficit between world consumption of 197 million tonnes and world production. It blamed poorer than expected South American production for the widening deficit.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
It forecast a continued rally in soybean prices.
At the Winnipeg Commodity Exchange, canola futures rose moderately, but couldn’t keep up to soybeans.
Last year canola was trading at a $60-$80 US per tonne premium to soybeans, but this year it is trading at a $60 discount.
Throughout the winter, analysts have blamed the relative price weakness on heavy farmer deliveries. Canola users didn’t need to worry about supply.
“We’ve visited both ends of the spectrum in the last 24 months,” said Tryhuk.
“I think the spread of canola to soybeans is as big as I’ve ever seen it.”
When prices are high compared to average, they are said to be “rationing” demand. That means that buyers are outbidding each other to the point that some simply leave the market.
For soybeans, most analysts think prices are now causing rationing, but not for canola. Statistics show canola stocks are also low.
Agriculture Canada estimates that 700,000 tonnes of canola will be left at the end of the crop year, down almost 200,000 tonnes from the same time last year and the smallest carryover since 1998-99.
While supplies are tight, farmers keep selling.
“Yes, our stocks are tight, but we’re not seeing that same kind of price performance to indicate that supplies are being rationed,” said Tryhuk.
