Canola Outlook May Be Better Than the Recent Negative Sentiment Indicates
There is a great deal of negative sentiment in grain markets these days. This is understandable as prices keep grinding lower, delivery opportunities have all but disappeared for some crops, and Canadian farmers are at the tariff-whims of foreign governments. For canola, specifically, the November futures contract fell over 15% from the mid-June highs, while weakening basis levels added to the drop in bids to farmers.
A natural question many farmers are asking is, ‘Will canola prices continue to move lower or are there reasons to be optimistic about values going forward?’. No one has a perfect crystal ball, but understanding some of the (many) moving parts that affect the canola market can help in making an educated guess on some potential scenarios. And as much as China’s tariffs on Canadian canola seed (as well as oil and meal) is a bearish factor, there are other things impacting values a well.
Over time, commodity prices are driven by the balance between supply and demand (although bouts of short-term ‘noise’ can cause unpredictable swings in the interim). While the crop isn’t yet in the bin, it’s looking increasingly like Canadian production could be the largest since 2018, probably exceeding 20.0 mln tonnes. This compares to expectations in spring that were closer to 18.5 mln tonnes. While still not unusually large, canola supply expectations have increased over the past three months.