Statistics Canada November Crop Production Estimates

[charliep]

The November estimates of Canadian crop production are at:

http://www.statcan.ca/Daily/English/021205/d021205a.htm

Canola a little higher, barley a little lower. Not likely to have a major impact on prices.

[rain]

Charlie I thought the same before I left this morning, how much more downside do you think canola has. Is it getting slammed on thin or heavey trading? I am very surprised how hard it sold this week so far.

[rain]

I was out three days this week, all three days canola was down. I am staying home tomorrow, I like to think I can sway the market.

[charliep]

I can identify. I remember heading off for holidays in 1988. My legacy is to identify the day I left for holidays as being the first day the market started to rally and the day I got back as the day the market started to come down.

Don't know how far but I think prices will continue lower short term. Why? Lack of out of the normal export demand. Speculators that are long/getting pushed out. New exporters that are rubbing their hands in glee and selling at what for them is good prices, etc.

I think it will take into 2003 to generate higher with recent highs the ceiling. To get higher prices, a weather problem will have to occur. Stay tuned.

Others thoughts.

[crusher]

The obvious question is - Charlie, what is your holiday schedule this year?

[Kasro]

Charlie, I think its time for you to take another holiday!

I agree with you that in 2003, we will very likely see higher prices for Canola. But it could occur sooner. Soyoil is still very close to its contract highs. The funds have or are just about washed out of their big longs. Farmers likely have sold as much as they want for calender 02. Buyers, including crushers should find better value now. Those are the positives. The negatives are seasonals, lacklustre demand, and a little higher stats Canada number.
But the market can surprise. I don't think I'd be comfortable holding a short position. For the most part this year, that has been a painful position to have.

Question is, when and where should we complete 02 and start 03 sales?

[charliep]

I am off the first half of January if you want to set up your timing on sales. The other hint would normally be how I trade futures - the day I sell is normally the best/most profitable day to buy (I like to share wealth). Too wild for me these days - I would have made healthy contributions to my futures trading education fund if I had been active over the fall.

I agree with the scenarios presented. It will continue to be a wild volatile pricing this winter. Owning some calls in this market is likely a good investment strategy.

I am interested in others comments on 2003 opportunities. As a disciplined hedger with a focus on profit (dealing with the realities of drought scenarios) you have to have a hard core look at/do some preliminary new crop pricing. Having said that, I would have a long hard look at an options strategy as an insurance policy on these forward sales.

[Kasro]

I am having a hard time get a hold on a good 03 strategy for canola. There is just too many unknowns. What is the likelyhood of higher acreage? Prices relative to other crops right now looks good. But obtaining seed is already problematic. And of course there still exists a large area of soil moisture deficit. South America? Wheat prices in seeding time? Spring weather?

I guess I agree that there will be lots of volatility, so to get in a hurry with hedges is not what I am going to do. With all of the above, there should be lots of opportunities, and hopefully for observant marketers, a little more will be known later on. I keep thinking that what I know now will be completely irrelavant in March/April.

But I also know most market gurus would say this is a non-plan or a gamble.

[rain]

Currently we are seeing very poor basis for regular canola in the Calgary region. Their have been some excellent basis for IP canolas. I am telling my guys, If you are taking basis to stay unpriced. If you are in a region of Western Canada that is still dry it is too dangerous in my mind to price any canola or to even consider pricing canola.

Guys make sure if you are taking an IP contract on basis make sure you know what the penalty is for none delivery.

[melvill]

rain when you say poor basis, is that for old crop or new?

Little wonder old-crop has poor basis. Last "visible stocks" report (old-crop inventory in rail cars, crushers or elevators, etc., showed almost 1.1 million tonnes of canola. That's up from last year in actual tonnes and away up from last year if measured as a percent of this year's production.

Next year there seems to be quite a bit of interest in growing canola. I was speaking at a conference yesterday in M. Hat and when I asked people to show hands if they planned on growing canola next year, more hands went up than I expected. Maybe that's why new-crop basis contracts aren't great. Graincos are expecting quite a few more acres and that'll happen if some combination of basis and futures gives fall delivery prices of $9.00/bu. or over, especially if we have good soil moisture in the spring.

However, I agree, it's a little too early to do anything on the pricing side yet. I'm waiting for Charlie to leave on holidays, too, of course for other reasons - his colleagues and I are thinking of leading a palace coupe!

[charliep]

I look at the strategy for this year as being like curling.

Right now is like setting up the game with lead rocks. A skips choices are throw up a centre line guard, two outside guards or call for a rock in the house.

Your choices for new crop marketing are stay unpriced (no problem with this), do some light forward pricing or look at some process that sets up a minimum price/allows freedom to capture price rallies (if they occur). The decision will be based on that farm businesses needs/risk preference.

In both cases, you can't 100 % predict the future so you have to be ready to be flexible/change.

[rain]

Spot and new crop canola basis except for IP canola, I consider to be poor. I did book some $13.57 over the may for may delivery on Monday though.

Cash values for barley and canola are poor right now.