Canola prices have taken a beating over the past month, but analysts
said producers shouldn’t despair.
Prices are likely to recover in the new year.
“Farmers are going to have a second chance,” said Errol Anderson of Pro
Market Communications.
“I think it’s fallen far enough,” added Ken Ball of Benson Quinn GMS.
“And we will have our rallies.”
Canola futures on the Winnipeg Commodity Exchange have fallen from
peaks of $460 per tonne in October and November to $428 on Dec. 16.
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Ball said the decline is no big surprise.
“This is inevitable. It’s normal market behaviour.”
Canola futures prices have been high since it became clear that the
Prairies would produce a small crop in 2002. Canola prices peaked and
stayed high for weeks, but that led to the present weakness.
“The market tried to push it higher for about a month, but once traders
buy something and keep buying and buying and buying and they sense that
it’s not going anywhere, eventually they are going to turn around and
sell,” Ball said.
Buyers haven’t needed canola enough to pay high market prices.
“There just hasn’t been commercial and other end user buying to support
it. Once the (speculative) buyers turned sellers, there wasn’t any
strong end user buying to hold up the price.”
Anderson said cash market prices have tumbled more than futures market
prices. Basis levels have worsened by about $15 per tonne in Manitoba
as grain companies and other buyers reacted to a clogged system and
farmers who were willing to sell.
Many farmers harvested canola in November, Anderson said. They
generally didn’t want to bin this grain, because they needed quick
money and because the long-lying crop needed cleaning and drying.
So farmers dumped it into the elevator system, taking up much storage
and leaving grain companies with a surplus. Slow movement on the export
market made the situation worse.
“Until we get this congestion pushed out, canola won’t do a lot,” said
Anderson.
That is unlikely to happen until about February.
Ball said he doesn’t expect canola prices to fall much below where they
are now. But he also thinks their upside potential is limited.
Vegetable oil prices are static, and that chains a ball to canola’s leg.
“There’s only so much people will pay for canola (compared to other
vegetable oil supplies),” Ball said.
“Supply can only take a market so far. We’ve hit the roof. It’s fairly
likely that we’ve seen the peaks in canola for the season.”
Anderson said he thinks canola prices could pass their previous peak if
vegetable oil prices increase. The early-January United States
Department of Agriculture report on stocks could send soybean oil
prices higher, which would help canola.
And basis levels should improve once the clogged system is cleaned.
Farmers aren’t going to be so keen to sell canola for a bad basis as
they were in November and December.
“When we get this cleared out, the market is going to turn around,”
Anderson said.
“I can see us flaring into the spring market again, because the guys
will not sell at this level. The tonnes that are in the system now are
the easy tonnes. Farmers felt their hands were tied for cash flow
reasons and storage. But the tonnes that are in their bins are in
strong hands.”
Anderson urged growers to not be overconfident and think they can hold
canola for ransom. Better prices will probably return, but farmers
should not expect canola prices to go through the roof.
“We will need huge help from the U.S. (to move canola past existing
peaks),” Anderson said.
“If growers get too greedy, the buyers will back off and this thing
will plummet again.”
