Canola acres will likely shrink this spring, but what growers lose in production they should make up for in better prices, says a grain industry analyst.
Marlene Boersch, co-founder of Mercantile Consulting Venture Inc., forecasts 18.8 million acres of the oilseed, down from 20.5 million acres last year.
Projected returns place the crop near the bottom of the pack, down from its usual spot at the top of the heap.
Boersch had bad news, at least from a price perspective, about last year’s crop. She thinks there is an one million more tonnes of production than Statistics Canada is estimating.
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Statistics Canada believes there were 13.3 million tonnes of production based on an average yield of 27 bushels per acre.
Boersch said that average yield is “hard to swallow” based on conversations she has had with her farmer clients. She thinks it is 31 bu., which would bump up 2012 production to 14.4 million tonnes.
She sees a smaller export program this year of seven million tonnes versus Agriculture Canada’s 7.2 million tonne number but a much bigger domestic crush of 7.3 million tonnes versus Agriculture Canada’s 6.5 million tonnes.
Canola crush margins have improved in recent months.
“That’s why you’re seeing very good basis levels,” Boersch told growers attending the canola portion of Crop Production Week.
The result of her production and usage adjustments is a carry-out projection of nearly 700,000 tonnes, up from Agriculture Canada’s forecast of 400,000 tonnes. That is still tight, but the Agriculture Canada number was verging on “undoable,” said Boersch.
If prices stayed at today’s levels, Boersch would bump up her total use number by one million tonnes, resulting in a negative carryout of nearly 500,000 tonnes. That should provide growers with a hint about where prices are heading.
“You should not be shy to reduce your (acres) 10 percent because we think you will get it back in price,” she said.
Boersch advised growers to sell 20 to 25 percent of next year’s expected harvest if new crop November futures climb to $575 per tonne and then wait to see what impact weather events have on prices.
A bullish sign is the comparison of canola crush margins versus those for soybeans. Canola had been over-priced last fall compared to soybeans, but that dynamic changed over the Christmas break.
“For the first time in a while, canola is starting to be attractive relative to the soybeans,” said Boersch.
The same can be said for new crop canola, which at today’s values would provide crushers with a $77.54 per tonne crush margin versus $21.73 for soybeans.
That is an important consideration for crushers in China, who have the ability to flip between crushing soybeans to crushing canola.
However, grain companies may be reluctant to export the crop overseas because they are making healthy margins with their Canadian crushing plants and there is more money to be made handling wheat.
Boersch forecasts 14 million tonnes of canola production in 2013-14 based on an average yield of 33 bu. per acre.
She sees seven million tonnes of exports and another seven million tonnes of crush, resulting in 734,000 tonnes of carryout.
