Don’t count on the recent canola rally going too high.
Analysts say the soybean-based rally has little long term momentum.
“Our strongest research sources say that the bean rally, while not a
bad little rally, can’t go very far,” said analyst Ken Ball of Benson
Quinn GMS.
“There are too many people who want to sell beans for it to go too far
– including about 85 percent of all U.S. (soybean) growers.”
Soybean prices rose and pulled canola with them during the week of
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March 4 to 8 after U.S. officials said the Chinese government had
clarified and softened import rules for genetically modified soybeans.
That lightened the mood of traders, Ball said. The GM situation had
placed the market under a cloud. No one knew whether the Chinese would
use their new rules to shut out U.S. soybean imports.
In recent years China has become a major buyer of U.S. soybeans and
many hoped increased Chinese demand would reduce the current soybean
supply glut.
The GM issue threatened that expected demand, Ball said. Last week’s
agreement provides comfort, but not a cure.
“Our people don’t think that the ‘agreement’ last week will impact the
amount of beans they buy, it just took away the fear that the door
might be slammed shut,” said Ball.
“China will continue to buy beans at a fairly steady pace, but it
appears that they are going to try to slow that pace down for a few
months.”
Errol Anderson of Pro Market Wire Report said the U.S. agreement merely
mitigates a worrisome situation.
“I don’t think the marketplace truly knows what it means,” he said.
“It sounds like the Chinese are going to give a little bit of breathing
room. But the market isn’t out of the woods,” he said, adding the
guidelines are vague.
“I don’t think this is the beginning of a major rebound at all.”
Ball said China’s restrictions on GM crops aren’t connected to safety
concerns. China has vigorously imported GM crops for years and is keen
to produce the crops itself.
But now that China is a member of the World Trade Organization it isn’t
able to control imports as easily as it once could.
Chinese farmers are suffering from low crop prices, causing millions to
move to the cities. That’s a problem for the Chinese government, Ball
said.
“The last thing Chinese cities need is more people,” said Ball.
“China is not really ready for the full shock of free trade. The view
of our analysts is that this is just a method for China to control
their imports and exports now that they are in the WTO.”
Alberta Agriculture market analyst Charlie Pearson said China wants a
non-tariff trade barrier.
“They want to slow down the pace of imports.”
But Pearson said access to China will eventually increase because the
country needs more meal and oil.
“I think they’ll go back to being a steady buyer,” he said.
Ball cautioned against making any predictions on Chinese demand.
“The Chinese situation is rarely what people think it is,” he said.
With large global soybean stocks, analysts believe the oilseed rally
can’t last.
“The South American soybean crop starts hitting in the next month,”
said analyst Mike Jubinville. “That’s going to take a lot of the wind
out of the sails.”
The next chance for a sustained rally is a problem with the U.S.
soybean crop this summer
The canola market has already factored in a lot of uncertainty because
of the drought and won’t move much higher by itself.
Anderson said new crop canola prices are edging up, and $350 November
futures are possible. But old crop prices haven’t shown the same
strength, which Anderson takes as a sign of weak demand.
“They’ve got no sales,” he said of local buyers.
Basis levels are widening, which means increases in futures prices
won’t necessarily trickle down to farmers. Farmers who have basis
contracts can still enjoy modest increases, but those without will see
little reward.
Jubinville and Anderson said farmer reluctance to sell put great
pressure on buyers early in the winter and some simply went away.
“The grower wasn’t selling and that really put the screws to the buyer
for a while and squeezed the crusher, and it probably cost us some
sales,” said Anderson.
