Earlier this summer, prairie farmers appeared to be on their way to growing a record canola crop.
However, analysts believe hot weather during August killed any record potential by drying up yields.
And the shaky world financial situation affecting commodities, currencies and stocks has been withering the price potential for the crop.
Last week, Statistics Canada estimated Manitoba canola yields four percent lower than last year at 26.3 bushels per acre, Saskatchewan yields 12 percent higher at 23.4 bu./acre, and Alberta yields four percent higher at 24.1 bu.
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“Nobody truly believes those numbers,” said Dulcie Price, marketing consultant with Optimum Agra Services Ltd. “They traded it for a day, but then the rest of the world got in the way.”
Canola prices, like all commodities, have been hit hard by the negative economic picture in Asia and Russia.
Farmers haven’t priced much of their crop yet, said Price.
“We know that growers weren’t even excited about the prices when they were higher, and we’re seeing guys dumping stuff now for cash.”
She expects prices to drop even more, and advised producers to keep an eye on futures prices and buy options or futures when the market bottoms.
While there is always a chance for a price rally after harvest, Price said world currency markets must first calm down.
Nolita Clyde, analyst with Statcom Ltd. in Winnipeg, said Statistics Canada’s canola yield expectations were probably reasonable for the end of July, when the agency surveyed farmers by phone.
“Basically, they missed all the hot, dry weather that affected the crop in the last few weeks,” she said.
After tinkering with yield estimates in Saskatchewan and Alberta, where some farmers have concern about greenseed levels, Clyde estimates the total Canadian harvest will be just over seven million tonnes.
Clyde said the large production in Manitoba coupled with no demand from Europe is weighing on basis levels for eastern prairie canola.
Basis levels – the difference between futures and cash prices – are already trading at last year’s lows at Thunder Bay, she said.
Meanwhile, at Vancouver, basis levels are still $5 or $6 above last year’s lows.
Clyde thinks sales to crushers here and abroad will be slightly higher than they were last year: “The demand for Canadian canola should still be strong, as long as we are competitively priced.”
However, she expects the industry will have larger carryover stocks into the 1999-2000 crop year. Prices will be pressured by the end stocks.
“The sellers have to meet the buyers this year, because there’s other good alternative sources they could use if … we overprice ourselves.”
Australia will likely have a huge crop of about 1.5 million tonnes later this year, and will compete with Canada in Japan, China and Mexico, she said.
China has been a good buyer of canola so far, but some people in the trade are worried about sales on the books.
“There is some concern because the prices they bought at exceed where the market is currently,” said Clyde.
“They have a reputation for wanting to renegotiate or potentially default on sales.”
