Canola futures are rallying, but when fixed costs and average yields are factored in, $10 per bushel doesn’t impress many farmers
New crop canola bids have hit $10 per bushel in some locations, but it might not be enough to persuade farmers to sign on the dotted line
“If you can pencil in a profit at $10, great,” said Brian Voth, senior market coach with Agri-Trend Marketing in Manitoba.
“Unfortunately, probably most farms would be borderline breaking even on an average crop, at least over here.”
Growers spend $400 per acre putting in a canola crop when factoring in fixed costs. And with average Manitoba yields in the low- to-mid 40 bushel per acre range, that doesn’t result in much profit at a $10 price.
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Jon Driedger, risk management portfolio manager with FarmLink Marketing Solutions, agreed that $10 might not be the trigger price for growers, even though it is a nice round double-digit number.
“(Farmers) aren’t exactly getting rich on $10 canola. It’s probably OK, but it’s definitely not a home run,” he said.
“I’d be surprised if grain companies are getting run over at that (price).”
Driedger said new crop prices have improved by $20 per tonne since the beginning of February because of a combination of better futures values and a more narrow basis.
There has also been steady improvement in old crop prices, which peaked at close to $11 last week.
Canola has been making gains despite an oilseed complex weighed down by expectations of a massive South American soybean crop, an expanding U.S. soybean carryout and forecasts for a big increase in spring plantings in the United States.
Driedger said canola carryout won’t be burdensome, and acres will likely remain flat at 20.5 million acres because of disease pressure, rotation issues and “ho-hum” prices.
Voth is advising clients to hold off on pricing their new crop canola because the market is inverted with nearby futures priced higher than November futures.
“That is the market telling you that they want canola now. They’re going to pay you less to store it until spring or summer,” he said.
“Typically, that will end up dragging new crop prices higher.”
New crop canola is priced at a 60 to 70 cent per bu. discount to old crop.
“To me, that’s too much of a spread to be really interested in pricing new crop canola right now,” said Voth.
Bids are higher in eastern Saskatchewan than they are in southern Manitoba, which is odd because there are more crushers in southern Manitoba, Minnesota and North Dakota than there are in eastern Saskatchewan.
“I wonder if it’s the market over there being concerned about acres being switched into lower cost crops like oats or something like that,” he said.
Voth expects canola prices will rise because he believes the 2014-15 carryout will be a lot tighter than the trade thinks. As well, there is a risk of losing ground to cheaper input crops and there is added crush capacity with the expansion of the Bunge plant in Altona, Man., and the addition of the Cargill facility in Camrose.
Exports should remain strong if the Canadian dollar stays depressed.
“I don’t think that there’s a massive amount of upside, I’m just not going to jump in February at $10 canola,” he said.
Voth is advising clients to stay patient and avoid the temptation of selling into the limited tonnage specials offered by grain companies because they are often a sign that prices could be heading higher.
