Canola is getting pretty old to be referred to as the Cinderella crop of the Prairies.
But the mature oilseed crop is certainly a princess this year, with farmers enjoying excellent crops and good price projections.
Usually big crops mean low prices, but this year canola is being pushed higher by the predicted dearth of soybean stocks in the United States by the end of the year and lower canola stocks in Canada.
Analysts say the low stocks mean canola can almost certainly sustain $9 per bushel prices for most of the 2007-08 crop year, and could reach $10.
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“Whether we get the rally now or we get the rally later, somewhere there’s a rally,” said Errol Anderson of Pro Market Communications.
“Demand will have to be rationed by price. The ending stocks next spring are going to be snug. My take on this market is that this is a $9 to $10 a bu. market.”
The recent strength in canola and soybean prices, which had fallen since spring on predictions of healthy stocks, reversed course after reports from Statistics Canada and the U.S. Department of Agriculture painted a picture of much less crop in stock by the end of 2007-08 than previously expected.
Canola and soybeans regained their high prices and spurred new calls for $10 per bu. from some analysts.
But most also suggested caution to growers, noting that they should not take $10 for granted.
“Is there a $10 potential in the canola market? I’m going to say yes, but you need weather issues,” said Mike Jubinville of Pro Farmer Canada.
He is recommending his clients lock in only one-third or less of their 2007-08 crop before the end of harvest this year, which is less than normal. That’s because the outlook for the post-harvest marketing season is so good.
“There’s no doubt in my mind that the demand elements are pretty strong,” said Jubinville.
“There are probably better prices to come, and as happened this year, the best cash prices of the year are likely to come in the second half of the marketing year.”
On the other hand, some domestic crushers are already offering $9 or better for February delivery, and those aren’t prices to dismiss.
“If $8.50 or $9 a bu. (delivered) are available, doing a little bit ahead of delivery is probably worthwhile,” said Jubinville.
Anderson has also encouraged his clients to go easy on 2007-08 canola sales because of the positive price outlook. That applies to canola prices and basis levels. Because canola stocks are likely to be tight, basis levels will likely narrow to entice deliveries.
“There are going to be some really good basis levels offered in the months ahead,” said Anderson.
“The whole North American picture has really snugged up.”
While canola stocks are predicted to be tight, the real reason canola has been propelled so high again is the prediction that U.S. soybean stocks will fall from an estimated 610 million bu. in 2006-07 to 263 million in 2007-08.
That has buyers worried, and all vegetable oil prices are being carried along by the soybean stock fears.
Joe Victor of market forecaster Allendale Inc. said that the present $9 US per bu. prices for U.S. soybeans will be exceeded if there are harvest-time weather problems. But if conditions are excellent at harvest, “$9 might be the high for the year.”
He sounds a note of caution for the coming year: high prices tend to attract farmers’ attention globally.
“We feel the world will be able to more than respond to high prices,” said Victor.
With futures prices indicating $9.20 to $9.25 US per bu. for Brazil’s crop, which will be harvested in March and April 2008, South American farmers are likely to plant another record-setting acreage.
