The canola market has finally roused itself out of winter inertia. The move, however, was likely opposite to what farmers holding canola were hoping for.
The June contract traded in a narrow $15-per-tonne range from December to March – from $430 to a brief top of $445 in early January – to break through $420 earlier in the month, a strong support level on technical charts.
Since the March break, futures prices have clawed back some, but not all, of the loss.
There are three ways to interpret the recent behavior of the canola markets: Bearish, bullish or neutral.
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Errol Anderson, manager of Palliser Commodities in Calgary, is bullish about the recent break in the price of canola markets and thinks that canola can retrace its steps.
World demand for vegetable oil, including canola, will start to pick up again later in the year, he said, which should be positive for prices.
Domestically, Anderson also thinks the market will have to “buy” some canola acres from farmers.
With cereal prices as high as they are, Anderson thinks canola acres could fall drastically to 10 million this spring.
A realistic price for those acres is $9 a bushel, he said.
Less optimism
Greg Kostal, an analyst with Continental Grain in Winnipeg, is more bearish about canola.
The U.S. is crushing soybeans at a pace that is driving the glut of vegetable oil. Ironically, Kostal said soyoil is almost viewed as a byproduct of the process. Crushers want to the soybean meal to sell, since demand for it is strong with low supplies of feedgrains like corn.
European edible rapeseed oil is about $35-$40 per tonne cheaper than Canadian canola, and sunflower oil is also an attractively priced alternative.
Eastern Canadian oilseed crushers have already imported European rapeseed oil this year, he said.
With buyers like the Europeans cutting back on Canadian canola purchases (exports lag last year’s pace by about a million tonnes), Kostal said that raises the prospect of higher ending stocks on July 31.
Kostal thinks if there are fewer canola acres planted, then exports to buyers like Mexico will cease.
Ten million acres of production coupled with carryover stocks is enough to supply domestic crushers, Japan and the United States for the coming year, he said.
A smaller crop this year will make carryover supplies for 1997 very tight, Kostal said. That’s when he gets more bullish about canola prices.
Ian Morrison, market strategist with Alberta Wheat Pool, is neutral about canola.
“If you’ve held on this long,” he said of farmers’ marketing behavior, “then I would hold on a little longer.”
Morrison thinks news this spring about acreage of canola in Canada and soybeans in the U.S. may give prices a boost.
And vegetable oil prices at their lowest levels in 21Ú2 years may entice China to do some buying, Morrison said.
He added the market is normally finished with springtime rallies by the Victoria Day weekend. If sales need to be made, plan to do them between now and then, he advised.
