Canola prices don’t appear strong now, but some economic analysts think the crop has a hidden strength.Farmers will need to decipher price spreads and historical levels in order to see it.”There’s just more of a demand pull and less of a supply push,” said canola analyst Greg Kostal about why basis levels on the Prairies now are generally stronger than they were five years ago. New crushers and higher value consumer markets are making price less important to buyers.”It’s a stronger, more reliable demand point that’ll mop up the growing yield growth trend.”A host of factors seems to be making canola a crop safer from demand collapses than it was in the past: * New crushers in Canada want to run their plants;* Chinese consumers want to consume canola oil and they have trouble growing enough in the country, making China a likely long-term buyer;* European biodiesel producers steadily churn through canola oil and force other users to bring in offshore supplies when production falls short.These factors translate into better basis levels in Canada and, over the long term, higher crop prices, analysts say.”With all the demand we have in Canada now, with the crushers and also the export demand, it’s way more price inelastic than it used to be,” said Chuck Penner of LeftField Commodity Research.Buyers from Mexico, Japan and the United States now are less likely to switch from canola oil to other vegetable oils just because canola prices rise, Penner said.That gives room for canola to rise relative to other oilseeds because canola won’t just track soybean prices.Canola oil is selling near the bottom of its usual trading range compared to soybeans, so with stronger demand, there is room for canola prices to rise $50 to $70 per tonne compared to soybeans and still stay within historical ranges, regardless of the weakness in the soy complex. Soybeans, soy oil and soy meal are under pressure from the huge South American harvest and prospects for a good American soybean crop.”There’s lots of room for canola to improve relative to soybeans,” said Penner.”That demand for canola oil is a lot firmer than it used to be.”
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