WINNIPEG – Farmers who grew canola this year may be rubbing their hands together in glee, but buyers may be clenching their fists to duke it out over tight supplies.
Statistics Canada last week confirmed farmers will harvest less than five million tonnes of canola this year.
Export buyers want 2.3 million tonnes, and domestic crushers ideally would like at least three million tonnes. Because demand outstrips supply, farmers should see strong prices.
Analysts believe canola stocks at the end of the crop year will be under 500,000 tonnes.
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When Mike Jubinville of Growers’ Marketing Services looked at supply and demand using recent estimates, he came up with a carryout of only 344,000 tonnes.
“I was scratching my head on that number because I would consider that critically tight,” he said. “I’m not even sure we can necessarily draw inventories down to that level.”
Ample supplies of soybean oil will keep canola prices in the $425 to $445 per tonne range for now, Jubinville said. But as stocks of the competing oil are drawn down over the winter, and canola buyers face tightening supplies, prices should rise.
“Somewhere, someone’s going to have to take the hit on this, whether it’s going to be the crushers or the export market,” Jubinville said.
The president of the Canola Council of Canada said both consumers will likely buy less seed than usual. High prices will ration demand.
Dale Adolphe said while Canadian crushers can handle 3.5 million tonnes of canola, tight stocks and poor margins will hold demand down to 2.7 million tonnes or less.
Export customers will likely also shave their demand and turn to alternate vegetable oils for some supplies, Adolphe said.
He explained the situation is both good and bad for the industry: Canada risks its reputation as a reliable supplier of canola, but farmers will be happy with prices and will likely plant more acres next spring.
Jubinville said farmers shouldn’t aggressively market their canola right now. But if they need bin space or cash flow, they should replace some cash sales with call options so they can take advantage of price rallies in the January to March period.
“I feel confident that we’re going to see $10 per bushel opportunities coming around for most farmers,” Jubinville said, adding even $11 per bushel is a realistic possibility. “Above that, it’s anyone’s guess.”
Call options for March $450 per tonne canola have recently been priced around $13 per tonne, while $460 per tonne calls have been trading for about $9 per tonne, he said.
However, Jubinville cautioned against waiting for a targeted high price and selling the whole crop. In a rising market, it pays to sell small lots. He added that $9.50 or $9.75 per bushel is, historically, a good price.
Adolphe said he hoped farmers won’t delay delivery once some elevator space is cleared. “The last thing we want to see happen is for farmers to sit on their seed,” Adolphe said.
“If they want to sit on something, sit on a futures contract or options contract.”
