Canola markets are messed up, says an industry analyst.
Grain companies and crushers are hungry for top quality product that farmers aren’t willing to sell.
Farmers want to get rid of poor quality crop the trade isn’t eager to buy.
And price signals are being distorted by circumstances beyond anybody’s control, says Errol Anderson, president of Pro Market Communications in Calgary.
The result is a stalemate, with little No. 1 canola expected to move out of bins over the next few months.
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“It will hit the market eventually, but between now and Christmas it’s not likely to happen.”
Farmers who are not facing immediate cash flow problems will likely wait until spring to sell their best canola, Anderson said.
However, he cautioned growers not to be too stubborn because there may be opportunities to achieve prices of more than $7 per bushel if they follow the markets closely this winter.
“A lot of growers just lock the bin and shun the market. They cross their arms and that’s not good marketing,” Anderson said.
“The market is brutal. It doesn’t care what the cost of production is and that’s the thing that farmers have trouble getting over.”
One of the key challenges facing the trade is the poor quality of this year’s crop. Early-seeded canola came off much better than many observers expected, but quality is rapidly deteriorating as more of the late-seeded crop is harvested.
According to preliminary estimates from the Canadian Grain Commission, the result will be a below-average year.
Although a definitive pattern cannot yet be ascertained based on the 1,611 samples tested to date, only 64 percent of the crop will make the top grade compared to the 10-year average of 81 percent. Another 27 percent is expected to grade No. 2 and nine percent No. 3.
While growers in Alberta, southwestern Saskatchewan and even some frost-affected regions had surprisingly good harvests, other pockets such as northeastern Saskatchewan were a complete disaster.
Harvest was a mixed bag on Don Werle’s farm near Langenburg in eastern Saskatchewan. Aside from a green seed problem with his Nexera crop, all of his canola went No.1 despite the frost.
“Our grading isn’t the problem, it’s the yield loss we had.”
Werle figured he lost 40 percent of his crop to frost. His yields ranged from 12-35 bu. per acre depending on the field.
He doesn’t see himself selling canola anytime soon. The first crop he markets will likely be what he pre-sold for February delivery.
“We’ll be holding it for a while anyway because I don’t like the price where it is right now. It may not get any better, but I’m certainly not going to sell it at the price it is at right now.”
Rob Meijer, director of public affairs with Cargill Ltd., said there is enough No. 1 on farms to meet the needs of domestic and international crushers; the problem is enticing growers to part with it.
Anderson said that’s because market signals are being garbled by the record U.S. soybean harvest, the rising Canadian dollar and poor crush margins.
Those factors have combined to drive down futures prices, nullifying the “sweetening of the basis pot” for No. 1 canola.
Basis levels usually at a significant discount to Winnipeg futures prices have “tightened up” $15-$20 per tonne. In some areas of the Prairies they are as good as “zero under” or no difference from the futures markets.
However, with canola futures diving along with soybeans, the resulting “flat price” is disappointing farmers.
“There’s going to be a lot who say, ‘we’re just simply not going to sell it’,” Anderson said.
Some growers who need the cash will market their best canola this winter, but in places such as Alberta, where many growers had a good crop year, there won’t be much action.
Farmers want to sell only their poor quality canola, which handlers such as Cargill are not interested in. Meijer said grain companies can blend No. 2 with No. 1 to meet export contract specifications but they can’t do much with No. 3 canola.
“The market is really in a mess,” Anderson said.
