Canola rides roller coaster
It was as though they poured canola oil on a steep hill and pushed off for a dizzying ride down.
The price of March canola contracts on the Winnipeg Commodity Exchange fell to $312.30 a tonne Feb. 26, a drop of about $32 a tonne in two weeks. In early January the price was about $385 a tonne.
The problems are directly related to bumper soybean crops being harvested in Brazil and Argentina, plus surveys that show American farmers intend to sow a record soybean crop. As well, slow demand is leading to forecasts of increased supplies at the end of this crop year.
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China purchased just over 20 million tonnes of wheat, corn, barley and sorghum last year, that is well below the 60 million tonnes purchased in 2021-22.
Brazil is undergoing a currency crisis. With the value of its real a fraction of what it was, traders expect Brazil will undercut American soybeans and cause a bigger stockpile at the end of the crop year.
The situation came to a head last week. Oilseed and vegetable oil buyers in Asia started to cancel orders they made weeks ago when prices were higher.
For example, up to 100,000 tonnes of Australian canola were caught in the cancellation trap as China, Bangladesh and, some traders said, Pakistan refused to accept deliveries as prices plummeted.
Analysts say buyers will wait for prices to hit bottom before stepping back into the market.
This means the rally in oilseed prices that often occurs in March or April will be delayed and will probably be less than expected a few weeks ago.
Charlie Pearson, of Pro-Ag Strategies in Calgary, said the breakdown in the oilseed market should signal to producers holding old-crop canola to lower their price expectations.
If prices rebound this spring, be realistic in setting a selling point.
If you believe there is potential for the market to rise higher in the summer, then replace the physical seed with a call option, which has also dropped in price recently.
It is hard to say how long the downtrend will continue. The market is now focused on South America’s crops and Asian demand.
But attention will soon turn to what American farmers are going to seed.
Early forecasts show farmers are talking about increasing oilseed acres.
The United States Department of Agriculture forecast soybean acres at 73.5 million. That’s up from 72.4 million last year, 70 million the year before and 64.2 million in 1996-97.
But today’s falling prices are telling producers acreage increases are not needed.
