WESTERN PRODUCER — Canola futures prices may test the lower end of a new range in 2023-24, says an analyst.
MarketsFarm’s Mike Jubinville thinks the new floor for canola is around $700 per tonne, which it hit towards the end of March before rebounding.
He thinks that number could be in the cards again because of a few bearish factors.
The first is the size of the 2022-23 crop, which Statistics Canada pegged at 18.1 million tonnes.
The agency has increased production of the previous five crops by an average of 700,000 tonnes between its December estimate and the final tally.
Jubinville believes that will be the case again this year. He thinks the actual size is closer to 18.6 million tonnes.
And then there is the fierce competition that Canada is facing from Australian canola in markets like the European Union.
Australian farmers harvested a record 8.3 million tonnes of canola and are expected to export 6.5 million tonnes.
“They have emerged as a significant competitive force,” Jubinville told farmers attending the MarketsFarm Spring 2023 Market Outlook webinar.
That is driving down prices in the EU, where Canadian canola is selling at a $50 per tonne premium to EU rapeseed. It usually needs to be at a $35 to $50 per tonne discount to work in that market.
Rapeseed oil has become the cheapest vegetable oil in the EU for the first time since 1999.
The other factor that will likely keep canola prices in check is the expectation that Canadian farmers will plant 21 to 22 million acres of the crop this spring.
That could result in more than 20 million tonnes of production.
Canadian crushers are expected to consume about 10 million tonnes of last year’s crop. Another eight to 8.5 million tonnes will be exported.
Chinese demand has come roaring back and will likely top four million tonnes in 2022-23. But demand from other markets like Japan, Mexico, Pakistan and the United Arab Emirates has tailed off.
Jubinville said Canadian canola is going to have to be price competitive with Australian canola as well as other competing oilseeds.
It has done a good job getting back into alignment with soybeans, with the two products evenly priced of late.
MarketsFarm was 100 percent sold on old crop barley at the end of 2022. Jubinville would still advise farmers to sell at today’s levels, even though they have tailed off.
The cash price for feed barley delivered to a feedlot in Lethbridge was about $410 per tonne at the time of his presentation on April 6. That is in line with what it would cost feedlots to bring in U.S. corn.
New crop prices were about $370 per tonne for fall delivery, which is a little cheaper than importing new crop corn at $390 per tonne.
MarketsFarm is 20 percent forward sold on new crop but is considering raising that level because of the threat of Australia and China resolving their barley dispute.
If that happens, prices could tumble $25 per tonne.
Jubinville is worried that his pea export estimate of 2.75 million tonnes might be too ambitious. Canada had only shipped 1.4 million tonnes as of the end of March.
The other concern in the pea market is that China has become “chummy chummy” with Russia. The two countries recently signed a phytosanitary agreement allowing Russia to ship peas to China.
That could further damage Canada’s export potential.
Considering those two factors, he may have to increase his “tight” pea-ending stock estimate of about 300,000 tonnes.
Farmers should jump on $12 per bu. yellow pea bids if they can still find any, he said.
New-crop bids are in the mid-to-upper $10 range. He would be inclined to hold off on contracting acres at those values because the landed price in China works back to about $11.
Lentils were the bright spot in Jubinville’s outlook.
Rising pigeon pea prices in India are the reason behind his optimism, especially for green lentils, which can be used as a substitute in many dishes.
India had a short crop of pigeon peas last summer. It will not be getting much supply relief until East Africa’s next harvest comes off in September, followed by India’s pigeon pea harvest in November.
Jubinville thinks Canada’s new-crop lentils will have a good sales opportunity before that, especially given the forecast of an El Nino, which could mean another dry summer in India.
Canadian large green lentil bids have been on the rise, climbing to 56 to 58 cents per pound. New-crop contracts for 50 cents per lb. are available, with act-of-God clauses.
Red lentil prices are also appreciating, although not as much. Old-crop prices are 36 cents per lb., while new-crop bids of 35 cents per lb. with act-of-God clauses are available.
