News of a record Canadian canola crop, a smaller-than-expected United States soybean crop and big North American wheat and corn crops pressured markets in recent days.
Statistics Canada forecast Oct. 8 that Canada’s canola crop would hit a record 8.6 million tonnes, up one million from last year.
The trade expected record production and record yield numbers, but that couldn’t hide the fact that there is a huge amount of canola to be sold this year.
Ian Morrison, of Agricore in Winnipeg, said the new production plus the carry-in from last crop year puts the total at about 9.3 million tonnes.
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“I just don’t know where it’s going to go. Last year China bailed us out in the fall and maybe that sent a false signal to people that we are living in a wonderful world and we can grow a big crop that is worth $8 or $9 a bushel.”
China is buying this year, but expectations are that it won’t take enough to rally canola prices.
He said even if Canada consumes 3.5 million tonnes domestically and a healthy four million are exported, that still leaves almost two million tonnes to carry into next crop year.
The U.S. Department of Agriculture also released production estimates Oct. 8. It lowered its estimate of soybean production and that initially rallied U.S. soybean futures.
But Monte Dorchak of Benson Quinn-GMS in Winnipeg said American farmers sold their beans into the rally, limiting their gains.
“So anytime a rally starts, it is stopped by the huge production out there.”
Morrison said that last year vegetable oil drove the oilseed complex, but this year it is meal. That means soybean prices will have more price volatility than canola, which is relatively high in oil.
Morrison and Dorchak said nearby canola futures prices will trade in a range of about $260 to $290 a tonne for most of the year.
The high end will probably come if there are weather problems in Brazil’s soybean-growing area.
Both recommended selling anytime canola gets close to $290 a tonne.
If a producer wants to be in a position to benefit if prices unexpectedly rise, he should replace cash canola with soybean call options because that’s the oilseed crop most likely to rally, Morrison recommended.
In corn, the USDA increased its estimate of production, which caused futures prices to fall.
The statistics report estimated the Canadian barley crop at 13 million tonnes, at the low end of traders’ expectations.
Although the feed grain complex is generally weighed down by good supply and weaker demand from a smaller North American livestock herd, Dorchak doesn’t expect a price crash.
He said Canadian cattle feeders have been busy filling their lots early this fall and the demand should help stabilize domestic barley prices.
Morrison said world demand for feed barley is better than it has been for some years due to drought in the Middle East and North Africa. The Canadian Wheat Board has a problem indicating this in its Pool Return Outlook. But it might prove advantageous to barley growers in northern areas, with high transportation costs to southern Alberta, to market a portion of their crop through the CWB, he said.
As for other grains, there was little in the reports to move the markets. The USDA increased its wheat estimate slightly. But there is not a surplus of high protein wheat so there should be fairly good demand for Canada’s crop.
