WINNIPEG — Farmers have historically been suspicious of commodity exchanges and the role speculators play in the marketplace.
But sometimes farmers are among the biggest speculators.
Last week’s run on old-crop canola prices is a case in point.
Futures prices gained as much as $16.50 over the week with the March futures rising the limit on their last day on the price board. New-crop prices tagged along, gaining $3-$4 over the week.
Analysts say the surge was backed by a lack of farmer selling, the continued decline in the Canadian dollar and aggressive sourcing by the Japanese.
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To Paul Erickson, an official with XCAN Grain Pool Ltd., the futures price increases meant cash prices in the country topped $9 a bushel. Although the prices brought some farmers into the market, it wasn’t as much as the trade would normally expect.
“Once a farmer sees $9 a bushel, he probably wants $10,” Erickson said.
Errol Anderson, general manager of Palliser Commodities Corp., says that’s exactly what’s happening. “The market is really running on a greed cycle right now,” Anderson said. “We’re offering $9.35 to $9.40 net to these people and they’re saying uh-uh-uh.
“They won’t take anything under $10.”
He doesn’t understand why farmers choose to gamble their entire profits on something that may or may not happen. Instead they can put more than $9 in their pockets today and still take advantage of that last dollar — if it happens — through call options.
“For them to roll the dice on $10 canola … the dice could roll a snake eyes quite easily.”
Both market observers see signs the market is topping out.
Anderson said offers of lower-grade canola, a big seller in Europe this year, went bidless last Monday in Vancouver. And the basis on No. 1 canola is widening.
“That’s a kind of early warning signal,” he said. Anderson said the Japanese — who held off on purchases last fall hoping prices would go down — will want to book about another 50,000 to 60,000 tonnes of canola. Then they’ll be out of the marketplace.
“It’s going to drop big, the question is when,” said Anderson, noting a $50 per tonne free-fall wouldn’t surprise him.
Erickson said Monday’s trade, which saw June futures fall $4 a tonne to $445.20, may or may not be the turning point.
