Canola carryover and market price

[wd9]

Anyone care to venture out and justify where the sweetspot is in terms of canola carryover?

Too much and the price goes down, too little and customers change labels which affects future sales.

Where is that ideal point? 10%, 20%, 0%, -20% like 2002?

Charlie, Lee, any studies or data available?

[charliep]

Don't know if there is a sweet spot. Normally a 1.5 MMT (stocks use 15 %) would be tight and something under 1 MMT 10 % would cause some volatilbity in the Canadian canola (ability for WCE to move on its own outside the influence of other oilseed prices). Reasoning - crop year is July 31 and major of canola don't enter the market until October 1 (depending on the year). You need two months supply around.

My carryover is around 2 MMT but have been know to wrong. This would say canola prices will move with other oilseeds.

There are lots of other factors that impact markets other than this one measure. Farmer are often bullish/tight holders of canola until they feel confident with their new crop crop production. Once they know they have crop, they are much more willing sellers to open up bin space/pay bills. Buyers are not 100 % unaware and will change their buying patterns to reflect what they think can be purchased from farmers (exporters don't short the market like they used to). This summer, there are likely to be extended shutdowns by domestic crushers as they do extended maintenance periods as well as bring new capacity on line. At the same, you have all the factors in play that influence worl oilseed markets.

Would I play all my marketing cards saying the trade will short itself this summer/cause monster rallies in July and August? No. Could we have an interesting summer on oilseed prices - quite likely but for other reasons.

What are others thoughts/experiences?

[JohnKenneth]

fwiw i'm using a 1.2 mln tonne carryout figure for 06/07. it gets a lot tighter next year, down below a mln for sure, due to new crush capacity coming on stream and my 14.5-14.9 mln acre new-crop seeded area forecast.

i've seen other analysts at below a mln for this year. seems to hinge largely on one's export forecast. what are your thoughts there charlie? seems to me if you think 2mln carryout you'd have to be forecasting a big slowdown in the pace of exports from aug-dec. would make sense given seasonality of chinese buying, i suppose.

[charliep]

My number is likely high - needs to be adjusted. I note that exports are running about 400,000 tonnes ahead of last year (2.9 MMT versus 2.5 MMT same time last year - CGC number). Crush (CGC) is at 1.8 MMT - just a shade ahead of last year.

1 MMT to 1.5 MMT is likely a good range of estimates. I am likely more at the top end with logic more extended shutdowns by crushers over the summer (bringing new capacity on line) and farmers that shut the taps off at some point in time (deliveries slow). Again - could be wrong.

Lots of mixed messages on soybeans with record supplies (assuming conditions stay mostly favorable in South America) the negative and the corn market bull/uncertainty 2007 US soybean production. I don't have any problem encouraging farmers to sell some at current prices. On the other hand, carrying some into the summer may not be a bad strategy either. A blend is best.

Last comment is how analysts have 100 % chance of being wrong if people take our advice. People think prices will go down/sell like crazy to the point inventories are tight - markets rally this summer. Farmers listen to bullish market analysts/put more locks on the bin (don't deliver) - lots of inventory July 31/prices tank (assuming other world oilseed market factors don't step in).

[wd9]

At what point do you figure we start loosing sales? It may be in the near future where the price set by soy and other veg oils limits price increase of canola oil even though the supply runs out.

We see this in Germany, although the price is strong, it only is that after the ****seed runs out - at which point price is irrelevant because there is none to sell.

Thoughts?

[charliep]

Prices function is to limit usage in times of short supplies. I guess your question (will have to help me) is what happens if you have mandated bio diesel use? The biggest factor will be increased volatility in prices of both canola oil and fuel (assuming again mandated bio diesel use).

Long term, the markets function will be to attract new sources of supply. Increased acres in Canada (attract acres from other crops). Higher yields as well. In Germany (perhaps even US), it will be to import more oilseeds and /or vegetable oil (doesn't have to be canola oil). ****seed will perhaps be the cinderella crop that it was here in Canada in the 1970s and 1980s.

The equally as interesting question is what happens with all the canola meal. I can see canola meal being worth well under barley and wheat on a per tonne basis.

[wd9]

At 2% BD inclusion, that is around 1.3 million tonnes. Less than our carryover - but that is today. More companies are realizing the ability to fry in canola without the trans so the ramp on demand is getting steeper.

Specialties will also be a variable because it is contracted production for a contracted price. That also creates less of a pool from which to draw regular commercial canola and thereby increase price swings even more dramatically.

Interesting times ahead.

[charliep]

1.3 mmt of canola or canola oil? Will be other sources of product to fill this demand as well - eg. animal fats, etc.

Would agree the future looks good for canola/canola oil. Look forward to Alberta canola industry meeting in April. Would appear western Canada has consistent and ongoing demand for 10 mmt of canola every year.

Again I raise the issue of canola meal. Has looked at fractionating out the protein portion of canola? I assume fibre is the by product. Can this be used in ethanol production (bugs that breakdown fiber)? What about in cattle rations?

[wd9]

Meal is the big question for sure. Protein extraction utilizing the Burcon technology is a possibility to replace animal based potentially allergenic protein source, but usefulness is limited. I think it will be used to gravel roads.

1.2 million tonnes of seed.