There was little optimism in the 2005 canola market outlook delivered to the Saskatchewan Canola Growers Association last week.
A number of factors are expected to keep downward pressure on oilseed prices including canola for the foreseeable future, said crop broker Larry Weber of Weber Commodities Ltd. in Saskatoon.
Those factors include a record U.S. soybean harvest, the promise of a record South American crop now in the field, an expected large year-end supply of Canadian canola, weaker demand, high ocean shipping costs and a weak American dollar.
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These factors have forced nearby canola futures to below $265 per tonne, down from the bull market of spring 2004 when futures soared to $440 per tonne in March.
And 2004-05 crop prices could drop more and flirt with lows set in 2000.
“Know when to hold, fold and run,” Weber said. “Learn from the past Ñ $240-$250 per tonne canola with zero basis is $5.50 (per bushel) delivered canola. For those of you who think we can’t get there, we have been there, and don’t think we can’t get there again.”
Barb Isman, president of the Canola Council of Canada, told the group at Crop Production Week that canola is priced about $20-$25 per tonne too high to make sales to price sensitive markets such as Mexico, Pakistan and China.
Weber had a similar assessment.
“We are still too far away from making the required sales to get our ending stocks number down.”
Canola ending stocks are expected to be about 1.7 million tonnes, the largest since 1999.
He noted that canola deliveries are running almost six percent behind the 10-year average as farmers keep canola in the bin to try to force the price higher. He expressed worry that farmers facing preseeding cash flow demands will all decide to deliver canola at the same time, adding further price pressure.
“But if they all decide to deliver at the same time we’ll get down to $240-$250 so fast it will make your head spin.”
The one possibility for a quick return to stronger prices was weather or disease problems in Brazil.
Last year, Asian soybean rust and pockets of bad weather cut Brazilian production by 10 percent. But this year, a recent widespread rain settled worries about dryness, and rust so far appears to be in check.
“With the rain on the 5th of January in Brazil, we are running out of time for a weather scare in Brazil,” Weber said.
Another factor keeping a lid on prices is high ocean shipping rates. Ocean freight was $10-$20 per tonne in the early part of this decade, but now is in the high $40s, he noted.
Weber was surprised by the canola crop’s resiliency to last year’s frosts. He was sure the August frost would wipe out a large part of the crop, but perhaps because of a heavy canopy that protected lower growth, and perhaps because of new genetics, a lot of canola was harvested.
But the quality suffered, with much more No. 2 and 3 grade than normal. Because of the high green seed count, crushers and processors are spending more to remove chlorophyll from the oil.
Although the outlook was generally negative, Weber did say several factors could support prices:
- Although the window of opportunity is closing, a weather problem in South America or a serious rust problem could reduce production there.
- Asian soybean rust has arrived in the U.S. Farmers there might shift some seeded acres to other crops.
- Longer term, low soybean prices will slow expansion of Brazil’s soy industry. The country also needs a lot of investment in roads and ports to efficiently move its crops.
- The U.S. now has a tax incentive law that benefits biodiesel production. This could take some soy production from food to the industrial market.
- Specialty canola appeals to those worried about trans fats, creating better demand for this niche.
