New-crop canola to see drop as acres climb

(Resource News International) — Canola contracts on the ICE Futures Canada platform are expected to undergo some major declines over the next couple of months as acreage ideas climb as in the absence of any production problems.

“The sideways to lower grind canola contracts have been experiencing will likely continue over the summer,” said Ron Frost, a Calgary grains and oilseeds analyst with Agri-Trend Marketing and Frost Forecasting Corp..

The biggest bearish factor hanging over canola values continues to be the size of the crop.

“The timely precipitation seen across the Canadian Prairies resulted in producers seeding a lot more canola than anyone anticipated,” Frost said, estimating that area could topple the 18 million-acre level.

That would surpass previous industry estimates calling for a record 17.2 million to 17.5 million acres to be seeded to canola.

Statistics Canada in its March planting intentions report estimated the 2010 canola crop at 16.907 million acres. In the spring of 2009, producers seeded a record 16.199 million acres to canola in Canada.

“The industry will be watching the next acreage survey from StatsCanada, due out in about three weeks, very closely to confirm the acreage jump,” Frost said.

Even if the area does not top 18 million acres, there will still be plenty of canola around, Frost said, adding that barring any yield problems, values for the November ICE canola contract were destined to drop to the $350 area if not lower.

The November canola contract on Wednesday settled at $383.30.

The only exception to the rule could be the nearby July contract, where Frost suggested that supplies are a lot tighter than anticipated.

“The contract could undergo some significant upward price action as participants try to get out of the July future ahead of its expiry,” Frost said.

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