Canola futures and western Canadian cash bids are expected to trend lower over the next year or so, as both the charts and outside fundamentals look bearish, according to analyst Greg Kostal of Kostal Ag Consulting.
Speaking here Thursday to the Saskatchewan Canola Development Commission during Crop Week, Kostal said that "a year from now, all things being normal, canola prices will be lower."
However, he added, weather adversity in North America or significant developments in outside economic markets could change that forecast.
Pointing to charts going back the past 25 years, Kostal noted a pattern in canola that typically saw two up years, two down years and two flat years.
After trending lower for most of 2011, he saw more room to the downside, with nearby canola futures expected to move from their current levels, of just above $500 per tonne, into the $400 per tonne area before the leg lower is complete.
In addition to the macroeconomic concerns weighing on most commodities, Kostal said the perception of crop losses in South America was also starting to become stale.
However, Kostal said there are a number of factors still in canola’s favour.
Canola supplies are somewhat tighter in relation to other oilseeds, helping the commodity command a sizeable premium over soybeans. That premium is currently at the upper end of its historical range, signalling that canola may not have much room for additional independent strength.
An expanding domestic crush capacity and increased demand for specialty canola oils were seen providing some underlying support for canola, according to Kostal.
That said, he also noted that while the nutritional benefits of canola may be supportive for the commodity in the North American market, on a global basis the demand is still tied to price more than anything else.