Overall, farmers tend to be an optimistic lot, particularly in the spring when a new growing season is still full of possibility and expectation.
Right now, things look pretty good across Canada as drought conditions ease ever so slightly and, at last, financial fund managers are starting to pull back on their endless shorting of commodity markets.
“We’ve seen a significant price rally in wheat, for example, where it looks like the funds are starting to unwind their short position, but still remain at record levels,” says Bruce Burnett, director of markets and weather information with Glacier FarmMedia.
He says changes in the oilseed markets haven’t been as abrupt. “Fund managers are buying back some of the contracts on soybeans, not as many on canola, so they’ve moved off record shorts but are maintaining a bearish position.”
It’s good news, but still a very delicate situation — a good U.S. wheat crop or rain in Eastern Europe, for instance, could see grain prices sag again. “But we’re no longer on that rocket ship into the ground,” says Burnett. Given that, what can Canadian farmers expect for the year ahead? Here are some of Burnett’s thoughts.
Western Canada: domestic crush capacity re-shapes canola markets
Toward the end of April this year, Imperial Oil started construction on a biodiesel plant located at its existing Strathcona oil refinery in Edmonton. The facility is expected to be in operation by 2025 and will produce more than one billion — yes, that’s a ‘b’ — litres of biodiesel per year, using canola as the main feedstock. It will be the biggest biodiesel facility in Canada.
It’s interesting when you consider that, since 2021, no fewer than five companies announced plans to build new canola crush/biodiesel plants in Western Canada, four of them in the Regina area alone. Indeed, should all these plans come to fruition, the region’s crush capacity is expected to double — and that’s before Imperial Oil joined the party.
“At the end of the day, these plants will increase our crush capacity by 13 to 15 million tonnes — if they all get built,” says Burnett, adding that it’s likely some will not because the economic environment has changed since they were announced. “The Strathcona plant makes the most sense as it’s in the middle of a canola growing region, and it’s already a refinery.”
Having the feedstock to feed all these plants is not an issue. “When we’re growing 20 to 25 million tonnes of canola, supply is not going to be a problem,” says Burnett. “If there’s a sacrifice to be made, it’s to our exports.”
Canada’s canola price has been higher than some of its competitors lately and Burnett says that’s partly because of our growing domestic crush market, which is more predictable than export markets because it’s not as beholden to global forces. “The best prices are near crush plants,” he says. And more plants mean more price stability. “Our canola prices will depend more and more on what the crush margins are, and that’s good for farmers.”
Burnett says Canada’s export customers will have to find other sources of canola, or switch to other feedstocks. Australia, for example, is already filling the gap because it doesn’t have a big domestic crush market so it needs to find export customers.
But how many crush facilities are too many? Is there a tipping point? “That’s going to be the job of the markets to determine,” says Burnett. “Part of this growth is down to the expected growth in biodiesel demand, which is a function of government policy. As long as there are no huge policy swings, like if subsidies aren’t removed suddenly, it will be okay.”
Eastern Canada: high grain stocks impact prices
The situation in Eastern Canada is a little different because the dominant crops there, corn and soybean, are very much export commodities. But so far at least, the season is looking good.
“Like us in the West, they have had a relatively dry winter, but they’re planting into moisture,” says Burnett. “It looks like the crop is going to get off to a good start this year.”
He thinks farmers should keep their eye on global corn and soybean stocks, which are already pretty healthy going into this crop year. “There is 2.122 billion bushels of corn in carryout stocks this year, which is 54 million tonnes,” he says. “That’s not quite as big as the total Canadian crop but it’s a substantial portion.
“Soybean stocks are a bit tighter — the current projection is 340 million bushels, and last year it was 264 bushels,” he says. It means that global stocks of corn and soy are only going to increase after this growing season and Burnett says that has been factored into the markets already.
“Prices are going to be down from last year,” he says. “November contracts for soybean are US$11.75 per bushel and December contracts for corn are US$4.74 per bushel. Those prices are down from the last couple of years, but it’s hard to call them bad relative to the years prior to that.”
It would take some minor disaster elsewhere in the world to bring those prices up, he says. “There are some forecasts for drought in the U.S. corn belt this summer,” he says. “But the season didn’t start off as a typical drought year and the crop got off to a good start, which is half the battle. So, drought might happen, but the prospects are intact, and that will affect prices in southern Ontario.”
He says farmers should monitor the weather here and in South America. “With La Niña expected to prevail come fall, which is when soybean is planted in South America, it’s something to keep an eye on.”
In terms of marketing with these factors in mind? “Keep an eye on this year’s crops as well as next year’s and stick to your plan,” says Burnett. Unless there is a big weather event, prices are not going to change dramatically, so sell your crop prudently.