Canola price

[rainman]

Anybody that knows what is going on witht the canola price of late, what a crock. I hope the hell no farmers panic and sell because this is a crock!! I predict that canola is going to be thru the roof soon, they are not going to be able to get the amount they need to support Euro biofuel and human consumption. Does anyone know what the final tally on canola acres will be, I know in north east SK acres are going to be way down, especially with the amount of drown out acres. We just got 2.5" on rain in 4 hours!!!

[wd9]

Funny all the hype over biofuel, ever consider building a crush plant?

[IAMTHEMOLE]

Hope you are right about canola price Rainman. Did you know however that priced in cdn$, new crop canola is priced $40/mt over new crop soybeans, with that premium being as wide as $52/mt 2-3 weeks ago. This price is before basis is deducted. I don't know if it is because of canola's high oil content driving it or what, but that kind of premium is probably not sustainable.

[TOM4CWB]

Rainman;

Rain makes grain... for the majority... at least in western Canada.

The Ausies are mostly in a drought right now... which brings our price up somewhat... as does the lack of good monsoon rains in India and dryness in China.

I wouldn't hold my breath on your bet... we could easily be at Nov 06 $230/t if the US bean and corn belt gets good rains for 3 to 4 of weeks.

[melvill]

I don't want to burst your bubble rainman and I DO hope you're right. However, in my work I see too many producers get "all bulled up", as I said in another discussion, and they end up being so incredibly disappointed. I guess the important thing to remember is that canola has substitutes - soyoil, cottonseed oil, and, yes, even palm oil.

The other important thing to remember is that this winter our crushing capacity couldn't keep up with potential sales of canola oil to the EU for biodiesel. We ended up exporting canola to Dubai to be crushed for eventual EU biodiesel.

Now, I'm not saying I'm bearish canola, but let's not get ahead of ourselves.

[charliep]

Just a note I would be following soybean oil more than soybeans themselves. CBT soybean oil has dropped off about 2 cents per pound over the past month and a half. An adjustment based on crush margin (900 pounds oil in a tonne canola times US 2 cents/pound adjusted for a 90 cent loonie) results in a $20/tonne drop in canola prices.

To be bullish canola, you have to be bullish soybean (canola cannot move on its own unless Canada had a major weather disater or canola acres are extremely low tomorrow. Does this suggest some soybean oil strategies?

[Jagfarms]

The canola price is sure to go up as I just contracted some new crop canola for september delivery at $6.15/bu $272/tonne delivered. By september with my luck there will be a bad frost somewhere and it will be over $8/bu.

[melvill]

Of course, Jagfarms, with your luck, N. America could have a bumper oilseed crop and fall spot canola prices could be $5.75 or worse.

That's why sharp marketers manage the price risk. Yes, the price could be higher but it could also be a lot lower, too.

The more important question is: Is $6.15/bu profitable for you?

[charliep]

I seem to have the ability to kill a discussion about as fast as anyone but here is a comment.

My thinking has moved over time from price forecasting to understanding profitability (Lee's point) and ability for a business to take risk.

I was at a meeting this last winter when I asked how many in the room had locked in a $7/bushel price spring 2005 for this past years crop. One of the guys in the room reminded me of an AAFRD price probabilty chart that shows $7/bu is a long term average with 50 % chance of being over and 50 % under. His comment was why would anyone price with a slip of a coin probability of being higher/lower (particularly when you are headed into the summer weather season).

Obviously their is a lot more information than just this probability table. Taking this one consideration, the farmer is likely right. Put risk into the equation and the answer may be different. Would anyone play Russian roulette with 3 shells in the chamber of a six shooter? Would you play the game with 1 sell in the chambers?

Most farmers high equity position means lendors are willing to provide credit and leave the marketing/risk side to the farm manager. Marketing with an eye to understanding your businesses ability to take risk/be profitable is an individual farmer responsibility.

Too simplistic but adds another dimension to a marketing decision.

[Jagfarms]

melvill

I am happy with $6.15/bu at harvest time as I will need to sell some Canola at that time to pay some bills and to make up some bin space if this years crop all somes off Ok.

The price may be up or down at harvest time and I have a feeling it will be be below $6/bu for sept delivery but I would not be suprised if there was a frost somewhere and the price would go up as well. In the past when I contract to sell different crops the price sometimes goes up shortly after I sign the contract.

[melvill]

Yes, Jagfarms, I understand your frustration or your-kinda-luck with price rallies happening after a major decision has been made. I guess I can't emphasize enough how important answering the question about 'is it a profitable price?' before making a pricing decision.

Of course, the market won't always offer a profitable price when we have to move product. Still, though, knowing what a profitable price is is so important.

[melvill]

Oh, yes, one more thing. One thing I find from my conversations with producers is that the great majority are woefully short of "good" market information. By "good" I mean, something they paid for, not just the farm press. There are a number of very good, fee-for-service market info sources out there. Have a look at:

http://www1.agric.gov.ab.ca/$department/deptdocs.nsf/all/sis5223?opendocument