Canola growers owe a debt of gratitude to the U.S. drought for the great prices they’re getting.
Without ongoing problems in the U.S. soybean crop, canola prices would probably be flat or falling.
“Frankly, canola is just another oilseed consuming choice,” said analyst Greg Kostal about canola’s participation in the recent rally that has taken soybean prices to dizzying levels.
He said canola lags soybeans as prices rise and fall.
Canola prices have stayed above $600 per tonne for new crop futures since the U.S. drought began to diminish prospects for the American soybean crop.
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But canola’s price increases have come up well short of what soybeans have gained and that tells the tale of two very different crops.
Canola and soybeans are both considered “vegetable oil” crops, but the real value in soybeans is its high protein meal, which is prized for animal feed.
About 80 percent of the weight of the soybean is meal and 20 percent is oil. That makes it mostly a feed meal crop. Canola is about 45 percent oil, which makes it mostly, in terms of value, an oil crop.
Oil is worth far more per kilogram than meal. The devastation of the U.S. corn crop combined with poor prospects for U.S. soybeans means North American feedgrain prices are sky high.
Canola growers might feel disappointment that canola’s gains have been so restrained compared to soybeans, but they are revealing their underlying value. Overall, soybean prices have risen almost 30 percent since May, while canola prices are up 10 percent. However, that’s better than soybean oil, which is up less than five percent.
If anything, canola gains are strong, considering the underlying value of the soy oil it follows has been flat. There are other oils available, such as palm oil and other edible oils, that could be swapped for soybean oil or canola oil, if their prices rose too high.
The fact that canola can realize a price increase with a giant Canadian crop in the field and while world vegetable oil prices are steady, shows the strength of world canola demand.
“Absent politics, China has potential to be an ‘open mouth’ for canola,” said Kostal.
Chinese demand has been continuous and even more would be flowing, and prices would likely be better still, if import restrictions on Canadian canola were relaxed.
Prices for soybeans shot high fast as ending stock calculations showed the U.S. crop would have little carryover if yields significantly fell.
