WASHINGTON, D.C. – It seems there is little hope this year for canola prices to improve significantly, since another massive soybean crop is waiting in the wings.
The U.S. Department of Agriculture forecasts a fifth consecutive record-breaking year for soybean supplies south of the border.
But one analyst at the USDA’s annual outlook forum said he sees some hope for high oil content oilseeds, such as canola, by March 2002.
In the meantime, soybeans will continue to put downward pressure on major oilseed complex prices.
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Philip Sronce, a senior analyst with the USDA, said U.S. farmers are expected to plant 75.5 million acres of soybeans this year, a million-acre increase over the 2000 crop.
Government loan programs have kept soybean growers’ net returns from decreasing despite lower prices, said Sronce.
Since the loan rate was set in 1996, acres have increased dramatically from 64.2 million acres to the record 74.5 million acres planted last year.
The USDA expects demand for the crop to also soar to record levels in 2001-02.
Crushing will continue at a record pace and livestock producers will increase their demand for soybean meal.
But at the end of the crop year, Sronce said stocks are forecast at 475 million bushels, an increase of 38 percent over ending stocks expected for 2000-01.
Average farm prices (before government payments) will sink to $4.25 per bushel (U.S.) next year, down from average prices of $4.65 anticipated for 2000-01.
Government payments for soybeans are expected to approach $4 billion this year, according to USDA forecasts.
Richard Feltes of Refco Ltd. said farmers have become indifferent to market signals and risk management strategies because of the U.S. farm program.
The subsidies have also made markets “lazy”, he said. Buyers don’t want to pay any more for grain than they have to because they’re confident the U.S. government will compensate farmers for low prices.
“The market smells the treasury,” he said.
“The market smells the money.”
Sronce said large soybean supplies make it difficult to project when vegetable oil prices will turn around.
Prices for soybean oil could stay close to their 30-year lows for the early part of the new crop year.
Major vegetable oil importers China and India are expected to have larger oilseed crops of their own this year, he said. But other vegetable oil exporters, including Canada, are expected to produce less.
The U.S. farm program and strong yields in South America have ballooned world supplies of oilseeds, said Larry Greenhall, senior vice-president of Louis Dreyfus Corp.
“It’s a very interesting time in the oilseed complex,” he said.
While demand for meal has increased an average of seven percent per year over the last five years, oil demand has been sluggish, he said.
High oil-yielding oilseeds like canola have suffered as a result. Palm oil production is also starting to slow, Greenhall said.
Canola prices have reached historic lows and canola producers in Canada, Australia and Europe have shifted production to wheat and barley.
But the three major canola producing areas will have tight carryout stocks in the new crop year, said Greenhall.
Crushing will slow but he expects demand for canola oil to remain steady. When China enters the World Trade Organization, it will begin buying more canola oil than seed, he said.
By March 2002, Greenhall foresees record low vegetable oil stocks. This will cause prices for oilseeds like canola to rise, he said.
