Canola growers received a big boost Oct. 10 when the United States Department of Agriculture reported a much smaller U.S. soybean crop than expected.
Canola prices quickly surged on the Winnipeg Commodity Exchange, echoing the soybean surge at the Chicago Board of Trade.
But some analysts fear the price spike that soybean and canola futures experienced because of the report will only inspire foreign farmers to plant bigger winter crops.
And that extra acreage, along with the high prices this autumn could spell danger for canola growers if they wait too long to sell.
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“I see this as a selling opportunity for producers,” said analyst Errol Anderson of Pro Market Communications.
“The sky isn’t the limit here. These prices are going to stop movement.”
Anderson said some traders are speculating that soybean futures, which are already trading well above $7 US per bushel, could reach $8-$9.
“I don’t see it,” said Anderson.
“They’re going to die on the vine if they do that.”
Along with sharply smaller production, the USDA also forecast lower exports, which should be seen as a danger signal, Anderson said.
“What the USDA is saying is that these high prices are going to stop exports,” he said.
Alberta Agriculture market analyst Charlie Pearson said the short-term gain in soybean and canola prices might be followed by an increase in overseas soybean production in a few months.
“We’re providing some pretty good signals for these guys in Argentina and Brazil, who are about to start seeding a crop,” said Pearson.
“Their outlooks will be looking pretty good these days … I can tell you, if we had these kinds of signals at seeding time, you’d see more canola acres.”
The U.S. soybean crop was ravaged by a summer heat wave that hammered yields, producing a crop seven percent smaller than was expected only a month ago.
The U.S. crop is the smallest since 1996.
The USDA figures Brazil will replace the U.S. as the world’s largest soybean exporter this year.
The U.S. will still be the world’s biggest soybean producer, at 67.2 million tonnes compared to Brazil’s expected 60 million tonnes this year.
Anderson said canola futures prices right now are good, but prairie basis levels are bad. He is recommending farmers buy soy oil put options so they can capture today’s good prices, but to wait before locking in a basis level.
The soaring Canadian dollar is sucking much of the wind out of canola’s sails as it tries to follow soybeans up.
The Canadian dollar has passed the 75 cent level and many analysts expect it to keep rising.
“The current administration (of president George Bush) is using the dollar as a factor to beef up the economy (in the run-up to the next presidential election),” said American economist David Kohl in Steinbach, Man., last week.
“Expect to see the (U.S.) dollar decline, depreciate a little bit further.”But while canola exporters are suffering from Canadian currency’s appreciation, which makes soybeans appear cheaper to buy, the crushers are doing well.
If crushers can keep making sales, they will likely shrink the presently high canola basis levels in order to attract supplies, Anderson said.
That’s what producers should watch for.
Farmers should try to lock in some of today’s high canola prices, because high soybean prices and rising canola prices will soon chase buyers from the market.
“There won’t be a Chinese buyer anywhere in sight,” said Anderson.
“We’ll wake up one day and that will start to hit and we’ll be limit down” in the futures market.
