Wheat deliveries up | Jump in canola prices unlikely, says buyer
Canola isn’t moving off the farm fast enough, which has one major crusher forecasting a “big, fat” carryout and lower prices.
Farm deliveries were 3.28 million tonnes through week 14 of the 2013-14 crop year, which is down 1.2 million tonnes from last year’s pace despite a much bigger crop that needs to be consumed.
“I think what you’re seeing this year is the growers want to be moving wheat,” said Aaron Anderson, assistant vice-president of grain merchandising with Richardson International.
Wheat deliveries were 5.5 million tonnes as of Nov. 10, up 614,000 tonnes from last year’s pace.
Read Also
Supreme Court gives thumbs-up emoji case the thumbs down
Saskatchewan farmer wanted to appeal the court decision that a thumbs-up emoji served as a signature to a grain delivery contract.
“The growers are making us move it,” he said.
“They think there is more market appreciation opportunity in canola than there is in wheat, durum, barley and oats.”
However, the likelihood of a canola price hike is diminishing each week that exports and crush lag behind last year’s pace. Exports are 200,000 tonnes behind, and the crush is 250,000 tonnes behind the 2012-13 pace.
What is particularly alarming is that it is happening in a year when canola supply is two million tonnes larger than last year’s crop, and that is using Statistics Canada’s conservative 16 million tonne production number.
Anderson believes the harvest was closer to 17 to 17.5 million tonnes, which would result in three to 3.5 million more tonnes of canola to move than last year.
He is forecasting three million tonnes of carryout in 2013-14, more than double Agriculture Canada’s estimate of 1.4 million tonnes.
“We’re going to carry more seed than we’ve had in the past, and that will probably have a fair bit of weight on the basis in the nearby and it will keep futures spread pretty much at full carry,” he said.
Despite the slow start to the year, Anderson believes crushers will meet or slightly exceed Agriculture Canada’s estimate of 7.2 million tonnes of crush.
Most crushers planned their annual maintenance shutdowns for the beginning of the 2013-14 crop year because there wasn’t a lot of old crop canola to be found. Richardson extended its shutdown by a couple of weeks to tie in an expansion at its plant in Yorkton, Sask.
As well, not as much canola oil was forward sold as last year because margins are not as good, which resulted in reduced capacity utilization at some plants.
The good news is that the crush pace has been similar to last year since about mid-September, and Anderson expects it will pick up later in the year because the three crushers in Eastern Canada will continue processing canola throughout the year, whereas last year they rationed demand for the crop later in the year.
He expects to make up the 250,000 tonne shortfall and exceed last year’s crush by another 250,000 tonnes in the May-July period.
What happens with exports will depend on whether wheat keeps up its torrid pace. Wheat exports through week 14 were 4.56 million tonnes, up 1.15 million tonnes from the same time last year.
Agriculture Canada is forecasting eight million tonnes of canola exports, up 739,000 tonnes from 2012-13.
Anderson said Japan and Mexico will take their usual amount. The wildcards will be China, Pakistan, Bangladesh and Dubai.
Sales programs to those countries will depend on how much competition Canada faces from Australian and Black Sea canola.
There are reports that the Australian crop is smaller than anticipated. The Black Sea crop comes off in June and July.
Anderson thinks exports could be 7.5 to 8.2 million tonnes, which won’t be enough to mop up all the excess in the system.
He said there is a great pricing opportunity in the July futures, which as of Nov. 18 was trading for $23 per tonne higher than the nearby January contract.
However, he expects that price will fall by July, based on his three million tonne carryout estimate, unless there is a weather scare in South America or Europe.
