Canola price outlook still solid

The high prices for canola enjoyed the last couple of years are likely to fade at least somewhat in 2012.

At least that is the expectation of analyst Mike Jubinville.

Jubinville was among the speakers at this year's Saskatchewan Canola Expo held in Yorkton Wednesday as part of the Grain Millers Harvest Showdown.

"I don't think canola markets are in threat of collapse I don't look at the year ahead as a calamity in the making," he said. "I think the highs are behind us

"Assuming no production glitches no real production threats there will be slightly tighter margins to work with than we had this year."

That said, Jubinville said "we are trading new dynamics in this market." He said the " The old highs are likely the new lows."

With that as a consideration Jubinville told farmers if they see $12 canola this winter "I'd be selling it."

And into 2012 prices are likely to slide farther.

Jubinville said he would expect canola to drop to $10 in the new year, adding "is nine-dollar canola there? Maybe."

Jubinville said determining what may be ahead has become more difficult because analyzing crop prices is changing. He said prices now are less influenced by specific commodity supply and demands numbers and forecasts, and more by world macro-economic factors.

"It's some of the big picture things; what happens in the global economy and how it trickles down to agriculture," he said.

For example when the United States banking system teetered on collapse in late 2008 and into 2009, the American way to "essentially run the printing presses and create new money out of nothing," said Jubinville.

It essentially created an over supply of U.S. currency, and the American dollar softened, but at the same time commodity prices climbed.

Jubinville said if you study charts as goes the American dollar in comparison to other currencies, commodity prices trend the opposite.

"As the U.S. dollar goes up, commodities go down, and when the U.S. dollar goes down, commodities go up," he offered.

With those ties, there are threats to market, like the currently uncertainty regarding the debt of Greece, said Jubinville, and that can send ripples through markets.

"The question is whether Europe is in deeper trouble that the U.S. was," said Jubinville.

Such uncertainly could curb economic growth, and that will impact markets, said Jubinville.

"If one commodity gets drawn down by slow growth agriculture will feel it," he said. As an example the European economic questions have sent the U.S. dollar higher, a signal commodity prices will drop.

Markets are also being influenced by non traditional investors. Hedge funds, retail investors and others are putting money into farm commodity markets.

"The participation of speculative money has created a much more volatile environment," said Jubinville.

In that same vein Jubinville said as goes one commodity, so goes other today. Agriculture no longer operates on its own merits. He said linkages between diverse commodities such as copper, crude oil and canola "are starting to happen now."

In terms of canola specifically Jubinville said in Europe rapeseed oil is holding prices nearly $100 a tonne more than other vegetable oils. While that is buoying canola prices, it is a drag on "increasing discretionary demand" for the oil, and is at a level where users start looking for alternate oils if they can use them.

World supply of canola oil is one which Jubinville said he "wouldn't consider it tight," and that situation will not help hold prices higher.

In Canada there is a strong domestic crush market for canola, with added production capacity recently coming on stream, said Jubinville, adding "Yorkton is the epicentre of that."