Canola prices limped to a disappointing close in 2003-04 and are considered unlikely to catch fire for the new crop.
There is no shortage of canola to spark the markets.
“It’s just not a tight balance sheet coming into this year,” said Winnipeg market analyst Brenda Tjaden Lepp.
“The 2003-04 carryout is larger than expected, and even if you factor in a bit higher exports and a bigger crush, it’s still not a tight situation for 2004-05.”
Ken Ball of Benson Quinn-GMS said canola prices could fall more, because they have dropped comparatively less than soybeans recently. Oil and meal prices have also fallen faster than canola seed, so there are poor crush margins. That could encourage crushers to stop buying.
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“There’s downside there,” said Ball.
While canola prices were generally good last year, they didn’t meet producers’ expectations. Early on, extremely high basis levels took the shine off futures. Then canola lagged behind soybeans’s impressive surge in late winter.
Now, abundant and timely rains in most of the Prairies have produced a large crop.
Huge U.S. soybean and corn crops are also close to harvest, providing comfort to buyers and allowing grain companies to charge a premium for storage and grain handling.
“You’ve got a storage issue with crops this big and once the buyers sense that, they’re definitely going to lean back and see what happens at harvest,” said Ball.
Tjaden Lepp said grain companies are already boosting the basis to discourage farmers from delivering.
“For the fall, the basis is $35-under in Saskatoon and $45-$50-under in Manitoba. That’s a strong signal not to sell,” she said. “The market is saying ‘don’t sell it to us in the fall; sell it to us in the spring.’ “
Not only are futures prices better for spring delivery by amounts that more than cover the cost of carrying it, she said, but the basis levels can be $25 per tonne better.
That’s a gain of almost $40 per tonne simply by deferring delivery a few months.
She said grain companies are speculating on farmers having storage problems by having wide fall basis levels. Their best basis specials are merely levels that at any other time would appear to be reasonable.
Ball said market lows are usually reached in late-July to early August, so price slides should soon end.
“Everyone’s got one eye open for a seasonal low,” he said.
Continued good conditions made buyers less anxious about an end-of-season problem like the one in summer 2003, Ball said.
Some growers may be unhappy that the predicted soybean crunch evaporated.
“When everybody’s looking for the same thing, it’s just not going to happen,” said Ball.
