Canola prices rallied strongly in February but excitement about growing another big crop is likely even at lesser prices.
Some analysts expect the rally to subside soon, but they don’t think it’ll stop planting almost 20 million acres this spring.
“You could see this market pull back $50 a tonne and I don’t think that would cause guys to change their plans,” said Jon Driedger of FarmLink Marketing Solutions.
March 2012 futures have gone from about $500 per tonne in early December to around $555 Feb. 17.
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Canola has enjoyed strong de-mand from crushers and exporters, but the driver of the rally has been soybean prices.
Some analysts see the $555 level as testing a resistance-support level. If it breaks higher, many would see canola prices rising a leg higher.
But if it bangs its head on the ceiling, many expect it to reverse downward.
After such a powerful rally, the reversal could be dramatic.
“If there’s some sort of a correction, it’ll be reasonably severe when it hits us,” said Errol Anderson of Pro Market Communications.
However, Anderson said he didn’t see the oilseed rally coming and doubts its justification.
“I thought the rally would have ended 20 bucks ago.”
He believes the main impetus has been speculative money, not fundamental changes in supply and demand.
Dryness in South America has reduced soybean production, but not enough to cause the sharpness of the rally, Anderson said.
Other crops are also enjoying a more modest rally and commodities and equities generally have rallied, giving canola room to run.
However, many analysts think the rise is overdone, regardless of the momentum.
Yet canola’s relative profitability compared to other crop options is solid.
“We’ll probably see prices soften as the year goes on, but guys have got forward sales on the books and I don’t think the market will totally collapse,” said Driedger.
“Guys will be growing it.”
