The canola futures rally to more than $500 a tonne presents farmers with a pricing opportunity.
Canola has rallied on the combination of the stalled Canadian harvest and strength in the palm oil market.
In the past three years, canola has not often climbed above $500 and never in the autumn. It is a level that generates a profit for most producers, so it should not be overlooked.
For many, it could be the bird in the hand that is worth more than two in the bush.
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What factors could push the price higher or lower?
If the Prairies had a long streak of dry, sunny days allowing harvest to resume, some price support would fall away. But the forecast to the end of October is not solidly dry in many areas and significant precipitation is seen on Halloween.
It will be a long, slow grind to get the tail end of this harvest in the bin. The likely outcome is that there will be some progress, but perhaps not enough to put strong downward pressure on the canola price.
Another factor supporting canola has been the strength of vegetable oil futures, led by palm oil.
Lingering effects from an El Nino drought in Malaysia reduced palm supplies in the world’s second largest producer.
But the seasonal trend is for palm prices to weaken toward the end of the year as buyers in cold weather countries turn to other oils because palm solidifies in colder temperatures.
Weaker palm prices would be a threat to canola prices.
The United States soybean market is both a weight and support for the canola market. The record large soybean crop is being harvested in good condition and normally that would depress the price.
However, U.S. soybean exports are hot, running well ahead of expectations and that is keeping soybean futures mostly steady.
It is hard to say how long that strong export pace can be sustained. Currently, there isn’t much competition from South America as the 2015-16 crop is mostly sold.
But at some point, buyers’ immediate needs will be met and they will suspend buying until the next South American crop is available, perhaps at lower prices. That soybean crop is now going in the ground.
Brazil’s soy production is expected to grow five percent to 101.3 million tonnes in 2016-17, according to soy industry group Abiove. It estimates total exports of 57 million tonnes in 2017 compared with 52.5 million tonnes this year.
Buenos Aires Grains Exchange analysts expect soy plantings in Argentina to fall three percent to 48 million acres as growers dedicate more area to corn and wheat because of changes in export taxes.
Brazil was dry but is getting rain now. Argentina has good moisture.
Finally, there is the currency factor to consider. The loonie has fallen to about US75 cents, the lowest since March. The Bank of Canada is publicly debating the need for more monetary stimulus at a time when the U.S. central bank is expected to tighten monetary policy in December.
A weak loonie supports canola exports and prices and it is likely to remain listless in the next few months as long as there are no signs of solid economic growth here.
Also, oil prices likely won’t provide much support
Sure, OPEC is talking about limiting its members’ production but it has a history of under-performing on its promises. As well, oil demand will be limited by mediocre global economic growth
I think crude is more likely to limp along near current levels or perhaps a little less.
