Today’s strong canola prices could entice growers to seed too much of the crop.
Domestic and export demand will account for about 10 million tonnes of the oilseed in 2007-08 and there is no reason to produce more than that, said Larry Weber of Weber Commodities in Saskatoon.
He told the Saskatchewan Canola Growers Association meeting in Saskatoon Jan. 11 that the price of the new crop is largely in growers’ hands.
“Put 15 million acres into the ground next year and your $8 (per bushel) … is going to be just a little head fake and it will be over,” he said.
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In the spring of 2006 farmers seeded 13.27 million acres, producing a crop of close to nine million tonnes. If production expanded about 10 percent to 10 million tonnes, that would roughly equal Weber’s expectation for combined domestic and export demand and not cause stocks to grow.
“There will be a time when we need 15 million acres of canola, but not next year,” he said.
The canola industry has enjoyed great news in the last couple of years, including the announcement of new crushing plants, increasing biodiesel demand, particularly in Europe, and the move toward eliminating trans fats in vegetable oil and shortening. Indeed, Los Angeles County politicians last week voted to look into implementing similar restrictions on trans fats that New York did late last year.
This is expected to increase canola demand because several low linolenic varieties are available that can be used in zero-trans fat food.
However, increased demand from these developments will take a little more time to make a big difference to the market, Weber said.
For example, the new Canadian crushers won’t be ready to take the 2007 crop but will present an opportunity for significant acreage increases in 2008.
Biodiesel, trans fats and the influence of global commodity investment funds sparked a robust and unusually timed harvest rally in oilseed prices during the fall, Weber noted. This new demand has the potential to hold oilseed prices at an attractive plateau for several years.
“You’ve got a great thing going if you manage it properly,” he said.
As always, prices will be influenced by weather and seeding plans elsewhere.
Brazil and Argentina are cruising toward record soybean crops. Spring weather has been near ideal in the Southern Hemisphere. The good moisture raises the danger of Asian soybean rust infections that can be devastating to yields, but so far the disease has not become a problem.
While South America’s crops are expected to be big, forecasted world demand is strong enough they shouldn’t deflate oilseed prices.
A year or two ago analysts waved red flags about large undeveloped areas in Brazil that could be turned into soybean production, Weber noted. However, he said soybeans are not as lucrative for Brazilian growers as first thought.
“They are not making a lot of money on $6 (per bu.) beans,” he said.
“Three years ago, I was scared to death that it was all going to go into beans and everything was going to go to hell in a hand basket.
“But they are starting to focus more on ethanol and sugar cane and a lot the acres being grown today are not going into soybeans. More acres are going into cotton and sugar cane.”
U.S. markets will witness a battle between corn and soybeans for seeded acres. Booming ethanol demand has helped give corn the upper hand, but biodiesel is also rapidly developing, with implications for soybeans and other oilseeds.
