Canola Marketing Idea

[rodbradshaw]

Tom I'am thinking in the neighborhood of $7.50 export wheat if we done hold it all for domestic use 4mmt this year and 4mmt next year. Domeastic protection price will hold wheat at $6.00

Canola like I said before will hit $12.00 because there isn't any around. And the money funds are like in the commodities already looking to **** and pillage but mostly blunder. I'am glad their playing with someone elses pension money.

[chaffmeister]

$12.00 per bushel canola ($529 per tonne) sounds pretty sweet but remember that canola's only market is to make oil and it must be priced competitively. The market's job right now is to ration demand for canola because as you say, there isn't any around. And the market is doing exactly what it's supposed to be doing - canola crush margins are pretty stinky right now and won't likely get better this crop year and the crushers will react; already starting to hear talk about ADM or Cargill shutting down for the year cuz they won't crush at a loss for very long.

Fundamentally, the road to $12.00 canola is paved with a tight soybean crop and strong competing oil prices, like palm oil - along with next to no canola. We may still see that.

The question you need to ask is "Who's going to pay $12.00 a bushel for canola? There are two correct answers to this:
(1) Someone who can make a margin out of it, and
(2) Someone who is short - that is someone who has made a commitment to supply canola (or the oil), simply needs the canola to satisfy the sale, and will keep bidding higher to get it regardless of the apparent crush economics.

We saw this occur in 1984 when June canola futures hit $722/tonne (a record). Exporters had made sales commitments to Japan, hedged the sale in the futures (therefore were long futures) and would only sell the futures when they bought cash canola from farmers or dealers. The shorts in the futures kept pushing the price higher in efforts to get out, which raised the price (to farmers). Basis levels were also at record high levels. Exporters were happy to pay the high prices because they were hedged anyway.

I guess we could hit $529 per tonne.
However, unlike the stock market during the late 20's or the recent dot-com bull market (technically, there was little difference), I don't see speculators standing in there and paying $529 for canola simply because they believe someone will pay them $539 for it sometime in the near future and allow them their profit. Yes the funds and other speculators may push us there over the next month, but my view is that if we see this kind of price later in the crop year it will be only because someone truly needs the stuff -either (1) or (2) above. And once they cover their needs, the buying stops.

[charliep]

Kernel

I hope you don't mind if I have a little fun and place a bet.

My wager is that canola will hit $7/bu before it hits $12/bu. Current price is $9/bu. Odds are in my favor in that I have $2/bu downside versus your $3/bu rally. El nino/tightenning world vegoil supplies are working in your favor.

The bet is for a lunch. We'll both keep track as long as it takes.

Interested? Again, this is just for fun - I am just as easily wrong as right.

[AdamSmith]

One possible way of getting to $12 canola is via the back door by way of currency changes.

Here’s the scenario,
A bean oil rally back to the 1998 highs, coupled with a significant slide in the greenback and gains in the Yen and Euro.

If the greenback fell by 15% and the Yen and Euro were to experience similar gains and assuming the loonie stays in the .63 -.66 range. Wouldn’t canola and the bean complex enjoy gains based on foreign currency gains and a weakening US dollar, adding more fuel to the rally?

[AdamSmith]

Charliep the bet is on. As I said before the last time that I didn't have any Canola it when to $12.00. I don't have any canola now(all written off and cut for feed, $170/acre crop insurance for a possible $400 crop, does that sound like 80% coverage to you) and I didn't have any Canola in 1984.

We'll have split pea soup and a roast beef sandwich because there both going to be rare commodities next year.

I think my reasoning has as much weight as all that there fancy talk that we get from you X pert analyst. Mind you, I do take all of you guys's comments into consideration when I'am making my red neck decisions.

Looking forward to having lunch with you. I'am real confident, its like taking candy from a kid. Maybe I'll have some cake and eat it too.

[TOM4CWB]

Kernel,

You are really a brave soul, but in this kind of market anything is possible...

but remember the hogs get slaughtered in this market... greedy people tend to get 50% on the dollar... like on the stock market...

The sad part is that this weather is destroying our ability to be a reliable supplier, and we will pay a heavy price for this in the future...

[charliep]

You are on for beef and split pea soup. The only question is who pays.

Just to note Chaffmeisters and Tom4cwb comments. This fall will be interesting in that there are export sales on the books that have been covered by producer DDC contracts this spring. Drought means that many of the farmers who signed these contracts don't have crop. The ships will still be arriving this fall. This could create an explosive price situation as everyone scrambles to get supplies. It will get interesting.

A comment for anyone who has signed a DDC/has a crop wreck and has not yet gotten out. Use the current dips in prices during early August to get out - too much risk going into Sept./Oct.