Canola’s future is as sunny as the plant’s yellow flower, says a market analyst.
One good indication of what’s in store for the crop in 2008 is the outlook for soybean values, said Larry Weber, analyst with Weber Commodities.
Analysts in the United States are calling for soybean prices of $14.50 per bushel by the end of July. Canola has closely tracked soybean values and there is no reason to believe it won’t be along for the anticipated ride.
“By the time (growers) are ready to seed, this thing could go ballistic,” said Weber, following his presentation to producers attending the canola portion of Crop Production Week.
Read Also
USDA’s August corn yield estimates are bearish
The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
He opened his talk with a slide showing canola values have increased $120 per tonne since harvest. The run-up in prices is similar to what some of the older farmers in the crowd experienced in 1973, but this time it’s different.
“Good times are here for a while,” said Weber.
One of the main reasons for his optimism is the expansion plans of major crushers. Between Louis Dreyfus, James Richardson International, Cargill, Bunge and Archer Daniels Midland, an additional 2.84 million tonnes of western Canadian capacity will be available by 2010.
“They’re building it hoping you guys will come to the party,” he said, adding the expanded capacity will create a market for 11.24 million tonnes of canola when added to existing crush capacity and export demand.
Weber forecast 9.8 million tonnes of production in 2008, up from 8.8 million tonnes this year, which leaves room for growth and creates an environment for continued high prices.
When Weber delivered his presentation, crusher bids for canola delivered in November 2008 were $11.66 to $11.80 a bu.
“You have never seen prices like this,” he told growers.
Since then, a bullish U.S. Department of Agriculture report added another 50 cents per bu. to new crop bids.
Based on the strong winter prices, Weber forecasts 15.5 million acres of canola, up from last year’s 14.7 million acres.
He noted that a big chunk of northeastern Saskatchewan, a traditional canola growing area, hasn’t been seeded to the crop for a while and he predicted farmers there will shift out of summerfallow and into the oilseed if they get the right weather.
JoAnne Buth, president of the Canola Council of Canada, said the industry has set an ambitious goal of boosting area to 17 million acres by 2015, but expanding in 2008 will be hard due to fierce competition for acreage.
Canola vies with wheat for acreage and while canola stocks are expected to be low at the end of the 2007-08 crop year, the situation with global wheat stocks is even more stark.
“With the wheat shortage we have it’s going to be difficult to maintain canola acres,” she said.
But Weber goes back to the soybean situation. The stocks-to-use ratio for U.S. soybeans is expected to fall to 6.2 percent in 2007, plummeting from 18.6 percent the previous year. That bodes well for soybean prices in the coming year and canola will have to keep pace.
“If we get anywhere close to those ($14.50 per bu.) numbers in canola, watch out,” he said.
Growers will need to keep a close eye on weather in 2008 because of a “full blown” La Nina weather event.
It is taking a toll in key oilseed growing regions. Brazil has moisture concerns. Argentina’s corn crop is under duress from extreme heat. And there is expanding drought in southeastern United States, although it hasn’t yet reached the soybean growing area of the country.
