Canola prices are tracking the overall trend towards lower commodity prices this year, but there is still room for some comfortable margins, a prominent market analyst says.
Speaking at Farm Credit Canada’s Ag Outlook 2015 in Winnipeg, Mike Jubinville of ProFarmer Canada said that while the canola markets aren’t good, they’re not really bad either.
“I wouldn’t consider this as bearish or bullish, it’s not burdensome, it’s not super tight, it’s a relatively comfortable level,” Jubinville said, adding that a sideways trend is now dominating the canola market.
“Now that trend may last for six months, it may last for 12 months, 24 months, at this stage it’s just too early to say. The next set of bullish fundamentals, or catalysts to start the next bull market are out there and they will come,” he said.
One factor could be ending stocks.
Although Statistics Canada revised its canola production numbers last week, raising them to 15.5 million tonnes, Jubinville believes lower prices will eat into end stocks over the next several months.
“Even at 15-1/2 tonnes, we’re still in a process of trimming down ending stocks this year,” he said. “I think that sneaky demand is going to come in here, and I think we’re going to export more canola than we think we’re gonna… so my ultimate feeling on ending stocks this year, maybe it’s a million tonnes, maybe it’s one, maybe it’s 1.1. million.”
But tightening stocks alone won’t boost canola prices, Jubinville said. Canola will need the support of other oilseed markets, as well as the vegetable oil market to really rally.
“However, it does supply an underlying sense of support under the marketplace,” he said.
Looking at long-term historical trends and contemplating the future of the markets, he is seeing a pattern emerge.
“This fits into what is my emerging philosophy of two, two and two — two year up, two year down, two year sideways,” said Jubinville.
Of course there have been major changes, most recently, a paradigm shift.
“I do believe we’ve gone through a once-in-a-generation paradigm shift in how the grain markets are operating,” he said. “The last time this happened was in the 1970s.”
For whatever reason or reasons, possibly the introduction of speculative involvement in commodity markets or the advent of the biofuel, Jubinville said prices that were once considered market highs are now the lows.
“So what were the old highs become the new lows, and this is something we’ve seen not just in canola, it’s in soybeans, it’s in corn, it’s in wheat, it’s in barley,” he said.
That new low however, will still have the ability to surprise producers as canola waits for the next bull market to emerge.
“We are going to test the bottom of this again, we’re going to shock people on certain days, it’s going to happen, it’s not a bull market, it’s a sideways trending market developing now, waiting for that catalyst to start the next bull market,” he stressed.
Those waiting for canola prices to move upwards before selling might have to wait awhile, and should take all factors into consideration.
“Again the steady decline we’ve seen in our canola market, it has a bit of a bounce, driven by meal markets that drove soybeans higher in October. Canola benefited certainly from some of that, but I think we are in this territory which I call my Maginot line of resistance, in this $440, $450 area,” he said.
“So we’re looking at pricing opportunities in this market and $10 a bushel tends to buy enough canola for now. I am 50 per cent sold and I am prepared to wait, and I think I’m going to have to wait for months until I see the next real opportunity to emerge.”
But if you’re undersold and uncomfortable about it, the analyst said you may want to sell when you next get a shot at the top end of the current price range.
Farmers who have a basis contract in place and who are looking for a delivery opportunity, or who have already delivered and have left their futures open, may want to roll their nearby contracts forward to buy themselves more time.
“I’d be more inclined to look forward to see if you can roll that contract forward, say in to the July contract… not to say that there’s a big rally in the making here, but it gives you more time.”