Canola rally – how high can it go?

Jan 28, 2021

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The price of canola has risen dramatically since August 2020.
‘The price of canola has risen from $460 per tonne last August to an early 2021 price near $660 per tonne,’ says Neil Blue, provincial crop market analyst with Alberta Agriculture and Forestry.
Average Alberta Canola Price
What is driving this canola market? Blue says there are several factors affecting prices.
‘Both the Canadian canola crop and U.S. soybean crop produced less yield than was expected earlier in the season. Then, exports for both crops increased during the fall and early winter, notably on demand from China.’
He adds Canadian canola exports have also become diversified. To the end of November, China was the number 1 market, doubling last year’s pace of Canadian canola imports 4 months into the crop year. Japan, in the number 2 position, continues to be a steady buyer. France, the United Arab Emirates and Mexico had each imported over half a million tonnes of Canadian canola. Other major canola importers include the Netherlands, Pakistan, Belgium, the U.S. and Germany.
‘Canola prices tend to be driven by the value of canola oil, which in turn is directed by the supply, demand and price of vegetable oils,’ explains Blue. The chart below shows the close relation between the canola and soybean oil price.
March 2021 Canola Future
Palm oil has become the largest produced vegetable oil and, being a substitutable vegetable oil, its price is closely tied to that of soybean oil. Due to supply and demand factors, palm oil is in the tightest supply situation in over 10 years, so palm oil prices had risen dramatically over the last few months.
‘The function of price is to ration demand to available supply,’ explains Blue. ‘Recently, the price of palm oil is signalling that the high price is doing its job of curtailing demand. As a result, the price of palm oil and soy oil have fallen sharply in mid-January. Canola prices have also retreated, as shown in the chart above.’
However, says Blue, to January 10, the Canadian Grain Commission reports that Canadian canola usage this crop year of 10.18 million tonnes exceeds last year’s pace by 1.4 million tonnes. With just over five months gone this crop year and an estimated Canadian canola supply of 22 million tonnes, canola supplies are slipping away.
‘If canola prices fall too far beyond the drop in vegetable oil and meal values, canola crushing and exports will be further stimulated, and canola prices will rise again.’
Blue adds a strong price rally early in the crop year is rare and has been driven mainly by Chinese demand and concern over the South American crop, which was seeded late and only recently received widespread rains.
This time of year is often a slow time for crop markets. The South American soybean crop could still be record-high, but the North American growing season is coming, with its own production risks and market excitement.
‘Can canola prices still rise to record high levels above $700 per tonne? Nobody knows for sure, but it is certainly possible. Meanwhile, metering crop sales into a rising market is considered the best approach.’
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