Fundamentals support higher canola bids

(Resource News International) — Cash bids for both old- and new-crop canola contracts have strengthened significantly over the past week and while there appears to have been a downturn in nearby demand, the fundamentals continue to suggest further upward price action is in the cards.

“The basis for canola has been holding together very reasonably despite a minor pull-back in demand for the commodity,” said Mike Jubinville, a market analyst with ProFarmer Canada in Winnipeg.

However, Jubinville said, while it appears the process of demand is scaling back, there is no real evidence to suggest things are changing from a pricing point of view.

“To me, the price trend in canola is up and that could last right through to after the harvest,” Jubinville said.

The Canadian dollar’s strength is certainly having an impact on the demand equation, he said, but there is also an underlying demand driving the market.

“That demand may not be as aggressive as it was a few weeks/months back, but considering the time of year, it is still well above normal, if not at historically high levels,” Jubinville said.

Demand was said to be coming from both domestic crushers as well as exporters.

How high canola cash bids can go still was seen as anyone’s guess.

“I have a feeling most producers with canola are going to be inclined to wait this out a bit and see just how high bids are going to go before they pull out the trucks and start delivering,” Jubinville said.

“I don’t see anyone getting aggressive about doing anything at the moment, as they feel canola is on an uptrend.”

Jubinville also indicated it’s not necessarily a matter of picking a pricing point and then delivering, but rather, producers should be looking at the reasons why canola is in the uptrend and what it’s going to take to stop it.

“When we start to see evidence of these kind of issues, that’s where the top will be,” he said.

The fundamentals for canola look positive, Jubinville added.

The slow start to seeding in Canada and the potential for a production shortfall will help to keep a firm floor under the market, he said.

“Add in the fact that Australia’s canola crop output will be lower than expected, the European rapeseed crop looks to be smaller, the former Soviet Union and Ukraine are also expecting reduced rapeseed harvests, and all of a sudden you have a potentially brighter price picture,”Jubinville said.

Correction coming

The analyst cautioned, however, that there is certainly a downward price correction coming in canola, and it could be extremely severe.

However, he said the overall uptrend should be able to handle the correction and remain intact right past the harvest.

Meanwhile, Ken Ball, a broker with Union Securities Ltd. in Winnipeg, indicated his firm has been advising producer clients to start nibbling at some of these prices in the cash market.

“It’s the time of the year, where you cannot be sure how long the spring rally will push before a downturn occurs,” Ball said.

The reason for the recommendation of a few sales at these levels, he said, is because the market has rallied about $70 to $80 per tonne and as a result it’s time for producers to put some of that into their bank accounts.

“We are anticipating a peak in the market over the course of the next few weeks as we would always do at this time of year,” Ball said.

Ball said the market finds 101 reasons to get excited and nervous in the spring planting season, but eventually the crops get seeded, and there is a harvest of a large crop. At that point, the market makes a sharp downward break.

“We are not quite at that moment but we are also not that far off,” he said.

As for the fundamentals being strong, that’s a matter of opinion, Ball said.

The fundamentals are supportive in soybeans, he said, and if you were to take away those influences, “canola wouldn’t even be in a cannonball’s range of where values are now.”

Old-crop canola cash bids delivered to the elevator in Saskatchewan, based on data from Prairie Ag Hotwire, currently ranges from $9.67 to $10.79 a bushel, in Manitoba from $10.21 to $10.45 and in Alberta from $10.54 to $10.88.

New-crop bids for canola in Saskatchewan currently range from $8.96 to $10.43 a bushel, in Manitoba from $10.04 to $10.41 and in Alberta from $10 to $10.41.

Canola cash bids delivered to the elevator in Saskatchewan on May 14 ranged from $9.02 to $10.77 a bushel, in Manitoba from $9.75 to $10.40 and in Alberta from $10.49 to $10.83. New-crop bids as of May 14 in Saskatchewan were $8.96 to $10.36 a bushel, in Manitoba $9.93 to $10.30 and in Alberta $9.93 to $10.30.

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