With the USDA predicting tight American soybean stocks by summer, analysts are cinching their seatbelts for what could be a wild ride through a winter weather market.
Canola, although not short on supply like soybeans, could be dragged along if South American soybean production stumbles.
“If there’s a problem in South America you’re going to see an explosive soybean market and a very strong canola market,” said David Ruff, a commodity trader with Fimat.
“It could be unbelievable.”
Canola industry analyst Nolita Clyde of Statcom Ltd. sees many limitations on canola’s price potential, because the Canadian crop is not small this year, but she thinks soybean rises will allow canola to be sold if they make canola look comparatively cheaper.
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The United States Department of Agriculture, in its latest supply and demand report, forecast U.S. soybean stocks will fall to 3.39 million tonnes by September, which would be the lowest since 1976-77.
U.S. stocks are small because of poor production and galloping demand. Chinese soybean buying has driven Chicago soy futures prices higher, with no end in sight. China is also expected to buy U.S. wheat.
North American oilseed crushers are making big profits now, and Chinese demand is not fading.
“At this point with the crush (margin) numbers we’re seeing and the continued demand from China, we’re simply not rationing demand,” said Ruff.
Canola is part of the vegetable oil complex, which means that its price tends to follow the general flow of soybeans, the dominant edible oil.
But because canola supplies are ample, canola prices are unlikely to keep up with soybeans, said Clyde.
Canola prices at the Winnipeg Commodity Exchange will likely either lag Chicago soybean rises, or possibly fall slightly to encourage buying.
Clyde said Australian farmers will soon start harvesting their canola and as they make sales, Canadian prices may feel the pressure.
The low U.S. soybean stocks have concentrated world attention on the South American crop, which is now being planted.
Ruff said a weather market should develop in early winter.
The most sensitive months are December and January, when the South American crop is most vulnerable and when problems can cause the most damage.
Already rumours of Asian soybean rust afflicting the South American crop have been spreading through commodity markets, Ruff said.
In some years, vegetable oil stocks are large enough that buyers have peace of mind that they’ll have access to the supplies they need.
But now that U.S. stocks are short, buyers will be worried by any problem in South America, which many expect to harvest its biggest crop ever.
“The USDA report is putting big pressure on South America to have big production with no problems,” said Ruff.
