There’s increasingly little room for canola to manoeuvre as the gap between the old-crop months and the new-crop contracts continues to narrow. One of two avenues await: either canola prices fall hard or, in a highly unlikely event, product prices suddenly spike.
Canola pushed ahead of other edible oils and is now overvalued and in need of a correction. The specs have pushed and shoved the Canadian oilseed higher than perhaps what they should have. There’s no one, especially the commercials, who would be interested in buying from the specs at these high prices.
With Chicago Board of Trade soyoil and soymeal about $60-$100 per tonne behind canola, that simply makes the situation more serious. One trader suggested canola could easily lose $100-$150 per tonne.
Even before the second half of April begins, the commercials have been rolling out of their old-crop May and July positions, not wanting to get caught in a likely downturn in canola.
With spring approaching — despite last week’s massive snowfall across southern Manitoba — more and more attention is turning toward new-crop canola. That’s seen several of those contracts surge well above $1,000 per tonne, shrinking the spreads.
While drought remains an issue across the Canadian Prairies, the canola-growing areas of the region so far appear to be in relatively good shape. The driest areas of concern, such as southern Alberta, don’t grow near as much canola as other parts of Western Canada.
Thoughts so far on the 2022-23 crop year have canola production vastly improving over last year’s 12.6 million tonnes. The exorbitant prices should entice farmers to seed more canola, provided their crop rotations are amenable to it. Conversely, there’s stiff competition from strong wheat, corn and soybean prices, among several others.
Once the snow has melted, with moisture seeping into the soil, canola should get off to a good start. The question is, can that be sustained? Should another drought strike this summer, canola and other crops would be in dire straits.
A good start and a positive outlook ahead of the summer heat should take something out of canola prices. Then it becomes a question of where canola goes from there. A decent summer producing a decent crop will pull prices down, while anything reminiscent of last year will push them higher. But in the meantime, before spring seeding gets underway canola is in need of a shakeup.
