Canola supplies seen tight despite record forecasts

(Resource News International) — Canadian canola supplies could still be tight at the end of the 2008-09 crop year, despite some forecasts calling for a record crop, as demand remains strong. As a result, prices for the commodity should also remain firm.

Agriculture and Agri-Food Canada currently forecasts a 9.5 million-tonne Canadian canola crop, which would be up from 8.75 million in 2007-08. The Canadian Wheat Board’s estimates on June 12 projected canola production at anywhere from 9.1 million to 10.3 million tonnes, depending on the eventual yields.

Assuming normal growing conditions, the CWB pegged canola production at 9.9 million tonnes, which would be a new record.

Mike Jubinville, a Winnipeg analyst with the advisory service ProFarmer Canada, pointed out that 9.9 million tonnes “sounds big, and is big… but this market demands 10 million tonnes. So in that sense, it’s not big.”

Working through the supply/demand tables Jubinville thought a 9.9 million-tonne canola crop still points to a carry-out below one million tonnes a year from now. “That does not suggest bearishness in my mind,” he said.

Flooding across the U.S. Midwest has caused U.S. soybean prices to rise to a higher extent than canola, said Jubinville.

Depending on the region, farmers will say that it’s too hot, or too dry, or too buggy, et cetera, but on balance Jubinville thought conditions were reasonably OK for the Canadian canola crop.

However, he added there was no room for production problems
given the current demand expectations.

A senior grain company canola exporter agreed that any production problems in Canada would be a concern. However, he thought a 9.9 million-tonne crop was “reasonably comfortable” and added that growing conditions were “pretty good” right now.

The exporter said expectations for a better canola crop in Australia will mean increased competition for exports. If the weather holds in Australia, he thought Canada may miss out on some export business in the year ahead.

At the same time, if Australia does encounter any problems over the next month, the available supplies of canola for export internationally could be cut considerably.

The exporter also noted that the increased crush capacity coming on line in Canada won’t be a factor until later in the 2008-09 crop year.

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