The high flying soybean futures market, whose updraft has helped buoy canola prices, will likely fall in a few weeks when South America’s large crop hits world markets.
Errol Anderson of Pro Market Communications told producers at the Saskatchewan Canola Growers annual meeting last week that soybeans could climb higher in the short term but the rally will be short-lived.
Speculators and investment funds focused on tight American stocks and strong Chinese demand that have driven the market higher.
But Brazil’s 60-million-tonne soybean crop is now being harvested, about two weeks ahead of schedule. Its production will hit the market in March, not April as is normally the case.
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“The Americans have about another two months, maybe, in the world market to play in the sun.”
The strong soybean market has supported canola futures, but Canadian farmers have been frustrated by the unusually wide basis between the Winnipeg futures and the cash price at the elevator.
While expensive ocean shipping rates have added to the problem, the real key is that farmers haven’t been able to close their bins to squeeze crushers because, with initial prices for Canadian Wheat Board grains so low, there is nowhere else they can get cash flow, Anderson said.
Also, the year-end stocks forecast of 1.1 million tonnes is not considered a shortage.
But an opportunity should develop at seeding time when farmers are too busy to deliver. That temporary shortage will squeeze crushers and force them to narrow their basis, he said. In the past, shortages often developed in June.
“But these days, that is when crushers do their (plant) maintenance,” Anderson said, adding that buyers are focused on the new crop by June.
The wild card in this assessment is China, which has bought enormous amounts of American soybeans. It has also bought some canola, but not enough so far to make the expected carry-out tight.
The Chinese have said canola’s price has to drop $10-$15 a tonne to spark their interest, he said, but added that unusually low Chinese grain stocks have made it hard to predict the Asian giant’s needs.
Generally, Anderson sees the Winnipeg March canola contract trading in a range of $367-$385 per tonne.
This year’s relatively strong oilseed prices will encourage farmers to grow more canola in 2004, weakening new-crop prices, said the analyst.
Anderson said new-crop canola will probably fetch about $1 per bushel less than old-crop product. That wasn’t what producers wanted to hear.
He said it is early to be making forecasts, but if there is reasonable moisture by seeding time and a normal growing season, acreage could grow about 10 percent, causing production to climb to about eight million tonnes.
If that happens “that will place a caution on the November contract in Winnipeg. That will likely keep old-crop canola at about a dollar premium to new crop.”
Weather and the Canadian dollar could change that outlook. Soil moisture is low across much of the canola belt and if it continues, acreage and yields might be lower than expected. That would pressure prices higher.
As for the dollar, Anderson expects it will fall to around 74-75 cents US, helping to support Canadian oilseed prices.
The loonie will fall because the current wide interest rate spread between the two countries will narrow, he said.
