Last week’s U.S. Department of Agriculture report gave the canola market a nasty blow and weighed heavily on feed grains.
Market analysts say prices are likely to continue stumbling.
“There is no magic wand that is going to fix this,” said Calgary marketing adviser Errol Anderson of Pro Market Communications.
The USDA Oct. 12 report estimated a soybean crop of more than 3.1 billion bushels, which market analysts expected. It also estimated the soybean carryout to be 405 million bu., which was about 20 percent higher than expected. The U.S. corn crop was estimated at more than 11.6 million bu., which was an unexpectedly large boost from the previous month’s estimate.
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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.
The Prairies don’t grow much corn or soybeans, but they set the price trends for most grains.
The huge soybean supply foreseen by the USDA has been bad news for canola, which slid below $300 per tonne at the Winnipeg Commodity Exchange. The November contract price initially fell to about $280 per tonne but recovered to $294 by Oct. 18 after the weekend snow halted harvest.
“There is still downside risk,” said Ken Ball of Benson Quinn-GMS.
The gigantic U.S. corn crop has killed chances of stronger prairie feed grains prices this winter, say most analysts.
“If you’re looking for a $2 oat in Chicago, you’re not going to see it,” said Randy Strychar of Ag Commodity Research.
“If you’re looking for barley prices being another $30 a tonne higher, I don’t think you’re going to see it.
“There’s just too much grain in the world right now.”
That leaves producers with tough choices about what and when to sell.
“If someone plans to keep back some low quality oats, they see something out there that I don’t,” said Strychar.
“Who do they think is going to want to buy it?”
He thinks farmers should sell feed grains now to avoid a marketing problem in the future and bring in some cash.
But Brenda Tjaden Lepp, a Winnipeg-based independent market analyst, thinks it makes more sense to sell anytime a good bid appears, but hold those crops that seem to be on the ropes.
“Consider all the crops in your mix,” said Tjaden Lepp.
“If you can still get $10 or $11 for your flax, that’s what you should take as a cash generator. Don’t be pitching feed wheat at two bucks a bushel.”
Canola has taken a beating and it could drop more, some say.
“We are getting into the final stages of the downward pressure on the markets, but I’m not comfortable saying we don’t have more downside,” said Ball.
Anderson said canola has fallen through the psychological barrier of $300 and that level now changes from being a market floor to being a market ceiling.
He thinks the best strategy for canola now is to make a storage hedge. That means selling canola futures contracts for November or January at a price near to $300 and not selling the cash commodity until close to those periods. Basis levels now are bad, but that should improve once harvest is complete, so locking in the futures price eliminates any nasty price surprises and provides an opportunity to get a better basis for the cash sale.
“I know it’s hard to believe that $290 canola is strong, but it is in this environment,” said Anderson.
He estimates producers could make 50-70 cents per bu. from a storage hedge versus a cash sale now.
There is little in the Canadian or world outlooks to provide much optimism for a winter rally of any size in any crop.
Early this week, corn and soybean futures contracts were trading below loan rates, the American subsidies that often act as price floors. Tjaden Lepp said the loan rates will likely cap any winter rallies.
“You get all these cash sellers who don’t have to sell (because of the loan rates) and they wait for a big bounce up before they sell,” she said.
“The knowledge that there’s all this grain waiting for this market whenever it rallies drags out the downside.”
She noted one wildcard still in play is the final quality profile of the Canadian canola crop. Some industry observers may have overestimated the amount of high quality canola because so far they have seen only early-seeded, early-harvested canola. Later on they may find there’s less quality canola than they’re banking on.
“We’re not going to know the real quality breakdown on this until later in the year when someone tries to buy it and it simply ain’t there,” said Tjaden Lepp.
She said the sheer mass of negativity in the marketplace may, paradoxically, offer hope.
“It feels like we’re at the point where all the bearish news is in the market,” she said.
She got many calls from nervous farmers last week wondering how low the price could go.
“You know, they say the best time to sell is when things look the most bullish, because the prices have gone as high as they can go,” she said.
“The opposite case for that can be made in canola right now. It could be the worst time to sell.”
She advised them to turn off the computer and avoid the market reports for a few days. It may be the darkest before the dawn.
