Canola gets more attention
It has taken new-crop futures prices of $10 a bushel, but Canada’s Cinderella crop is getting more attention from potential suitors.
Weather during the ball may also affect how much canola Western Canadian farmers grow.
While most farmers were seeding furiously during the last weekend of May, that’s too late for later-maturing wheat, many special crops and Argentine canola.
Switching to earlier maturing Polish canola is a possibility, as is a switch to barley or oats.
But until the number of seeded canola acres is known, and the yield potential for those acres, canola futures are likely going to trade in a tight range, said Larry Ruud, analyst with Market Maximizer Inc. in Sherwood Park, Alta.
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“Until we get some confirmation as to acres, I don’t see canola taking any major steps in any direction,” he said.
Even with record carryover stocks of 2.57 million tonnes – 1.95 million stored on farms – the forecast reduction in canola acreage of 32 percent by Statistics Canada will keep prices trading in a narrow range.
Ruud defines that range as about $10 a tonne. It would take a move of $20 for him to change recommendations for MMI clients.
The target is farmgate price of $9.40 a bushel for canola. Some of his clients have already sold 10 to 15 percent of their new crop.
“At $10 a bushel off the combine, even selling 10 to 15 percent of anticipated production is a good solid risk management tool,” he said.
In a market where the underlying tone is strong, as it is with all oilseeds this year, Ruud said farmers can afford to be patient when it comes to pricing the rest of their crop.
Brenda Brindle, an analyst with KenAgra Management Services Ltd. in Edmonton, is also focusing on new-crop canola.
While prices are still high, stocks of wheat are starting to loosen up worldwide. That leaves the door open for oilseeds to play a more dominant role in the market.
“Oilseeds will come to the forefront and stay there,” she predicts. “But it may take into 1997 to happen.”
Still, it’s hard to argue with the profitability of $10 canola. KenAgra clients who use the cash market to price their crop may have up to a third priced, she said. Others who are more confident using the futures market may have as much as half their 1996 crop priced.
Ruud is waiting until canola prices become less volatile before advising clients to replace their sales with call options.
Brindle’s clients may use paper to re-own their 1996 crop and get in on any rallies – either canola call options or the futures markets. Brindle thinks when the tally of acres is taken in June, canola acreage won’t be down by 30 percent.
As for old-crop, clients of both firms would be nearly sold out of 1995 canola. Brindle said storing a canola crop adds about $1 a bushel to the price in a year (using a 10 percent rate of interest). “That adds up.”
MMI clients replaced their 1995 canola sales using Chicago soybean meal call options, getting in on the run-up in feedgrains prices.
Ruud said his clients exercised those calls so they didn’t expire worthless.
