The oilseed market is like a ship sinking under the weight of a huge South American soybean crop.
Canola could climb to the top of the mast, but that doesn’t negate the fact that the ship is sinking.
The harvest has begun on a record-breaking South American soybean crop, up 35 percent from last year.
Analytical firm Oil World says this new supply will keep the pressure on soybean prices, which have already dropped more than 12 percent from the post harvest high set in December.
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Pressure is also coming from forecasts of potentially larger seeded area in the United States this year.
Early forecasts range from 77 million to almost 80 million acres compared to last year’s 77.5 million acres. Some analysts also think Canadian canola acres will rise.
Oilseed values are directly related to their component parts: oil and meal. Soybean oil content is low and the big crop will produce a surplus of meal as it is crushed.
Supplies of high-oil oilseeds such as canola and sunflower are less burdensome, which will help support vegetable oil prices.
Soy oil futures have risen for several weeks and as of March 10 were down only marginally from the post harvest high set in early January. Soy meal futures, however, were down 17 percent from the high set in December.
The result, says Oil World, is that the price of canola, with its larger oil content, should appreciate relative to soybeans. Domestic demand for canola will increase when Richardson’s crush plant at Yorkton, Sask., opens.
World oilseed production in 2010 will likely be large again, but demand should also increase, meaning year-end stocks should not become a serious burden.
