An economic storm overseas has resulted in a few waves hitting Canadian shores, leaving canola markets slightly dampened by volatility and uncertainty.
The European debt crisis, along with a weak American economy, has affected canola markets, ProFarmer Canada’s Mike Jubinville told farmers attending Ag Days.
“Certainly this has always been and will continue to be an important contributor to determining price direction for all commodities, canola in particular,” said Jubinville.
And the global economy isn’t going to perk up overnight, he said.
“Right now it still seems we’re caught in this sluggish marco-economic environment,” the analyst said. “I think the global economy is still trying to find its legs.”
This will likely prevent any explosive rally in canola prices, said Jubinville, adding that means there’s no reason to hold on to old-crop canola.
“I’ve decided to make aggressive sales on old crop this year,” he said.
For new-crop, fall-delivered cash prices, Jubinville predicted farmers will see around $10.70 to $10.90 per bushel.
“From a historical perspective, $11 is a pretty reasonable price, and I think it’s a price level that makes money,” he said. “So would I talk anyone out of starting a graduated process of marketing new crop with an $11 starting point? No, I wouldn’t.”
Old highs are new lows
Canola pricing has seen a paradigm shift in recent years, in which old highs have become the new lows, he said.
“Canola futures had traded for the last 25 years or so in the range of maybe $250 to $275 a tonne to as high as $400, $450,” he said. “But then, once every generation, we seem to have one of these massive paradigm shifts. The last shift was in the 1970s, when we had a big shift with the highs and lows in the market making a leap higher. I think that is what has happened in this environment.”
But Jubinville said he’s not expecting another price surge anytime soon and said he expects canola prices to be between $10 and $12 per bushel for the foreseeable future.
The analyst also wondered how long canola oil will command a premium price.
“We can only operate at a premium for so long before a substitution effect starts to take place,” he said. “Canola competes with other vegetable oils and oilseeds, so ups and downs in those markets affect us as well.”
Recent shifts in canola pricing are linked in to increased demand for biofuels and changes in investment practices, he said. Canola futures aren’t just for producers any longer, and more and more investors are looking to agriculture as a safe haven of investment and it is having an impact on prices.
“We’ve… had the speculative interest that has entered the commodity market field to a degree that has never happened before,” Jubinville said. “The retail investor, the you-and-me people, through these massive pooled funds, speculative funds, hedge funds, ETFs, have allowed retail investors to participate in commodity markets to a level that never happened before.”