It’s crop/trade show season time and the beer gardens and the booths have been busy debating next year’s acreage (in addition to making seed deals!).
So what are these canola numbers really going to turn up like? And how will it affect canola prices?
Right now, my guesstimate is that we could see as many as 1.5 million less acres of peas and lentils get planted this spring than last year. Knowing that clubroot and blackleg disease issues in some areas are real, planting canola on canola seems very risky.
Before the new year, I suggested that Canadian canola acres in 2018 could climb to 23.4 million acres. Further, if canola prices strengthened at all in the first quarter of 2018, then maybe we would see acres pop up above 24 million acres.
For perspective, 2017/18 Canadian canola acres were a record 23 million, while the five-year average is 20.8 million acres.
The big kicker is whether or not we can get the ending stocks number lower. Currently, estimates are ranging between 1.5 million to 2 million tonnes of Canadian canola still available for sale by the end of the 2017/18 crop year..
While this is no means small, it’s also not necessarily huge either.
The biggest question mark will be exports, of which the AAFC and the USDA both peg at 11.5 million tonnes today (P.S. that’s a new record). If this exports number creeps up in tandem with strong domestic use, then we’re potentially in a good position for prices.
However, those good prices just mean more acres. It’s a catch-22 that everyone is wrestling with. And with canola being the crop with the most amount of consistent demand, it’s hard to ignore seeding more acres where you know there’s a profitable, liquid market.
Today, we continue to encourage sales at or above $11.20 – $11.40 CAD / bushel. Basis levels are started to narrow a bit, which has helped trigger a sale by producers in a few areas on the FarmLead Marketplace.
That being said, at these basis levels and futures price, we’re getting more comfortable either locking up a basis deal or locking up a cash price for another 10% sale. Post you deal on the FarmLead Marketplace now about 8% above the local market.
If you’re going to post a basis offer on the FarmLead Marketplace, just leave the price as $0.01 and put your asking basis value in the comments. Our credit-verified buyers can negotiate with you easily.
YOU ALSO NEED TO make sure to set a target at your local elevator that you normally make canola sales to that’s about 4-5% above the current market. They might laugh a bit but don’t be afraid to ask them about offering a better basis to lock up the 10%. It’s your canola and you have the right to negotiate on it.
Further, the reason that we’re willing to lock up basis now is three-fold:
First, the Canadian Loonie historically trends sideways to lower in the first calendar quarter. If the Loonie goes lower, basis will likely wide again.
Second, March 2018 canola futures prices (which we would price our basis from) are at multi-month lows, sitting around $490 CAD / metric tonne on the Winnipeg ICE Futures board.
Third, we have about 6-7 weeks to price out the March 2018 futures value (canola buyer policy-dependent), meaning that this gives the market about 1.5 months of rallying time on South American weather premiums.
Should we be making a bigger bet here?
The answer is no. And the reason it’s no is because we spread the price risk out. If the canola market does rally with soybeans thanks to South American weather issues, then we’ll have an opportunity to price more cash canola as well.
Where will shrinking pulse acreage go in 2018?
Canadian pulse seeded area will likely be down significantly in 2018 because neither prices nor demand are likely to improve soon.
That raises the question of where the former pulse acres go. For many, it will likely mean more canola area, and that raises worries about disease pressure.
Pulse area surged in the past few years as production problems in India and developing demand from China created opportunities for new sales.
Total area for the two crops climbed to a little more than 10 million acres in 2016, up almost four million from just three years before.
Total area slid back last year to about 8.5 million acres — 4.4 million for lentils and 4.1 million for peas — but that was still the second largest ever.
The problem is that a big part of the demand for pulses evaporated when India produced a record smashing crop last year and virtually overnight became self-sufficient. That is the main reason for the lack of sales to India.
The duties and fumigation issues that India’s government imposed are only a side note to the key issue of ample domestic supply and India farmer anger at falling prices.
With India out of the market, Canadian year-end lentil stocks are expected to rise to 750,000 tonnes, or about four months worth of demand, and a million tonnes or more of peas. In both cases, the stocks-to-use ratio would be record high.
India’s demand is unlikely to come back soon.
India’s government estimates that winter crop all-pulse area stands at 38.3 million acres, up nine percent from last year. Chickpea area, the main winter pulse, is 13 percent higher year-on-year. Harvest begins in March, and unless there is a sudden weather disaster, India is on its way to another bumper crop.
India’s ultimate goal in the pulse sector is to be reliably self-sufficient, but analysts warn of the danger of permanently cutting off imports.
G Chandrashekhar, who often writes about the sector in the Hindu Business Line, made that warning last week in a column. He said imports could be better regulated if the right to import was limited to actual users — that is, pulse processors. It would remove speculators who import and horde product in the hope of profiting when the price rises.
I don’t know if this would work, but his comments about the danger to the Indian government of blocking imports long term are wise. Weather is fickle and bumper crops won’t always be there. Supplies from Canada and elsewhere will be a welcome safety net when drought again appears, as it always does.
However, while all this is being resolved, Canadian farmers are starting to produce their seeding plans.
I would not be surprised to see pulse acreage fall by two million acres back to levels common in the early part of this decade.
A significant portion of that will likely go into canola, even if it means pushing rotations.
Farmers produced a record canola crop in 2017, but demand is good. Exports are ahead of last year, and domestic crush is about the same year over year. Year-end stocks are expected to rise from last crop year but are not expected to be particularly burdensome.
The current cash price is $10 to $15 a tonne higher than at the same time last year, and that is with a loonie that is trading around US80 cents, about four cents stronger than last year at this time.
Last year canola rallied in the January to March quarter, partly because of a falling loonie and strong exports. Cash prices were attractive, near $500 a tonne in mid-March. That helped farmers decide to boost acreage.
Will we see a similar rally this year?
I think no one can accurately predict the direction of the Canadian dollar.
All I can note is that for the past two months job creation in Canada has been much stronger than expected and the jobless rate dipped to a 41-year low of 5.7 percent.
The expectations for the Bank of Canada to raise interest rates this month are rising, and stronger interest rates usually mean a stronger dollar.
There is still a concern about moisture in Argentina’s soybean crop, but Brazil seems to be doing well. A record U.S. soybean seeded area is expected because corn is unprofitable for many.
Wheat is a seeding alternative. Its price is tethered by ample global supply, but if current dry weather in the U.S. Plains continues and the recent bitter cold actually does lead to winterkill in Kansas, there is potential for a short-term price rally that could draw more land into spring wheat.