BRANDON – Canola prices have probably moved into a new trading range, but it’s too early to know exactly what its limits are, two analysts told farmers attending Manitoba Ag Days.
Somewhere between the peak of early 2008 and the early December low is where canola prices will range, barring some major supply increase or decrease.
That should allow farmers to avoid bottom-of-the-range prices and grab those near the top of the range.
“I think there are going to be opportunities and reasons for farmers to be optimistic,” said Winnipeg analyst Greg Kostal.
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But he cautioned farmers against expecting a quick return to last year’s peak prices. He thinks cash canola for the next one to two years could be in the range of $7 to $12 per bushel, with $7-$8 being too low and $11-$12 too high.
Prices between $8 and $10 per bu. should be considered reasonable, considering the underlying fundamentals of big supplies and a weak economy, Kostal said.
Prices often lie within long-term ranges, bouncing between support and resistance for years. Last year’s rally broke the old range and a new one will take time to become visible, Kostal said.
The new trading range will probably be wider and more volatile than the past one, which moved within a $1 to $2 per bu. channel.
This time the range is more likely to be $3 to $4.
“I think we’re in the process of moving into a sideways trend,” said Kostal.
David Drozd of Ag-Chieve said he thinks the December lows are likely to be the lows of the new trading range. He agreed with Kostal that the new range will swing higher and lower than what farmers were used to in the early 2000s.
“I believe we are defining that new, higher trading range,” said Drozd. “It’s got a big, volatile swing to it.”
It’s impossible now to say where the range will develop within the limits set by the 2008 peak and trough, but Drozd estimated that for the next few months, Winnipeg canola futures will fluctuation within a $100 per tonne range from $357 to $457.
Only if a major weather calamity hits South American soy crops will canola prices break out of this range and trade up to $508.
That’s why he recommends farmers sell canola now, if they need cash. Prices are floating near the top of the range he sees, and will likely fall for the next two months.
Seasonally, oilseed prices fall when South America harvests its soy crop and recover when traders turn their attention to the North American growing season.
“Farmers should be taking advantage of what we have here,” said Drozd.
Too many farmers are looking to lock in a $10 per bu. cash price, but that may be a dime or a quarter too high. If they wait too long, they could miss out and wind up selling at a much lower price.
“Farmers should really be taking a hard look at selling something here and not holding out for that $500 per tonne,” said Drozd.
“Disciplined farmers are selling something here, even if it isn’t the perfect $10.”
Drozd and Kostal said their estimates of canola’s new trading range could be nullified by major events affecting supply or demand.
“Anything is possible,” said Drozd.
“I’ve learned that in the commodity world. Never say never.”
