(Resource News International) — Farmers in Western Canada are holding onto record amounts of canola and while selling has been steady so far, Canada’s elevator system could be overwhelmed if producers are spooked into delivering, industry observers warn.
“There is more canola in the hands of producers in Western Canada than there has ever been in history due to record-large seeded area and above-average yields during the 2008-09 crop year,” said Mike Jubinville, a Winnipeg analyst with the farmer advisory service, ProFarmer Canada.
“As a result, there is a lot of canola to come forward yet and the danger of that is there is not enough elevator capacity to handle all the canola should producers become aggressive sellers.”
Deliveries of canola into the commercial pipeline in Western Canada so far in 2008-09 have been very disciplined and thus have managed to keep cash bids for the commodity at reasonable levels, Jubinville said.
The tight holding of canola by farmers has also resulted in supplies being held by commercials falling to some extremely tight levels.
Canadian Grain Commission statistics for the week ended Dec. 31 showed that canola supplies in commercial position totalled 692,300 tonnes, which compares with 831,800 the previous week and 1.417 million during the same time period a year ago. Farmers had delivered a total of 4.518 million tonnes of canola into the commercial pipeline during the 2008-09 crop year to date, which compares with deliveries of 4.238 million at the same point the previous year.
Jubinville said cash bids for canola in Western Canada have been in the $9 to $10 per bushel range, which from a historic point of view is extremely good. However, in relationship to the $12 to $14 seen during 2007-08, the prices are obviously not as appealing.
Expectation of higher returns has been a key factor in the tight holding of canola, said Ken Ball, a broker with Union Securities in Winnipeg.
A lot of farmers are prepared to hold onto their canola a bit longer, believing that a bottom has been established in the canola market, he said.
“It will, be hard to get the producers to part with the canola especially if they think there is still something that will send prices upward.”
The dryness situation in the soybean growing regions of Brazil and Argentina is possibly one of those factors, said Ron Frost, manager of AgProfit Driver, the marketing division of the Pike Management Group in Calgary.
“Canola producers in Canada have been holding their breath on the South American situation, hoping that the dryness will still encourage some further upward price action in the oilseed complex,” Frost said.
However, Frost, Ball and Jubinville all concurred that as February and March approaches, cash requirements will demand that producers start moving their canola.
There will also be the need to make room in on-farm bins for new crop supplies, Jubinville said. He added that some may not want to store canola during the hot summer months as well.
“Once the deliveries start, they will come at a pretty fast pace,” Frost said.
Jubinville also pointed out that very little of the canola being held by farmers is on storage tickets.
Area seeded to canola in 2009 will need to decline by at least 20 per cent, Ball said, in order for the market to rebalance itself.
“Growers I spoke with know this is desirable, but they are also concerned that there are few other crops other than canola that provides them with premiums, the best yield performance, a visible market they can easily trade and a good immediate cash return,” he said.
As a result, Ball said, producers are going to be reluctant to give up canola acres.