WESTERN PRODUCER — Canola futures prices have been on a wild ride.
Nearby futures lost about $120 per tonne in two weeks before rebounding slightly at the tail-end of the week ending March 24.
“We’re seeing an exit of money from the long side of the market over the last month or so,” said Ken Ball, canola analyst with PI Financial.
“A lot of that money just decided, for maybe a number of reasons, meh, it’s time to go away and do something else.”
But the market over-corrected, to where canola was extremely cheap relative to soybeans, triggering a slight price rebound.
The May canola futures contract jumped $15 per tonne on March 23, while soybeans and soybean oil and meal tumbled.
“That’s probably the most extreme day I’ve seen of relative movement between canola and the soy markets,” said Ball.
Canola climbed another $8.20 per tonne on March 24. This time soybeans and soybean oil and meal followed suit.
Ball said canola’s downfall was in the cards.
“When markets are that high coming into a new growing season, boy, they better get some bullish news or they’re not going to stay that high,” he said.
Instead, canola received bearish news when the Australian government issued its March crop report forecasting a record 8.27 million tonnes of canola production, up from the previous record of 6.82 million tonnes last year.
By contrast, the soybean market received bullish news with the continued deterioration of Argentina’s crop. Some experts now forecast a crop of less than 30 million tonnes. A healthy crop would be 50 million tonnes.
“We’re hearing yields of five, 10, 15 bushels an acre and abandoned acres could be up to 15 percent this year, which is huge,” said Ball.
However, Brazil is expected to produce a record crop of 153 million tonnes, according to the U.S. Department of Agriculture’s Foreign Agricultural Service.
That massive Brazilian crop has pressured nearby soybean futures prices below the $15 per bu. level.
Ball thinks Argentina’s dismal crop will keep prices from falling to $12. He thinks they will settle in the $13.50 to $14 range.
Oilseed markets will soon shift away from focusing on South America’s crops to spring weather in North America.
Ball said it is still dry in large parts of the Canadian Prairies, but conditions are good in the U.S. Midwest where the soybeans are grown.
He has a hunch that Canadian growers will shy away from canola this spring.
“The feedback I’m getting from growers in the Prairies is they’re going to grains,” said Ball.
Wheat and barley are easier to grow than canola and require fewer inputs.
And canola growers have struggled to get the big yields recently.
“Five years ago, everybody was getting 60 to 70 bu. canola,” he said.
“Now it seems to be a struggle to get into the 50s.”
