Despite recent setbacks, canola prices are looking up

By Clare Stanfield

Canola has had a wild ride since the start of the season, and in particular, over the last few months. Market factors, agronomic realities and geo-political shenanigans have all played a hand in the ups and downs of this key crop. The question is, will it settle down and will you be able to get your canola sold for a decent price this winter?

“There are some positive signs,” says Bruce Burnett, director of markets and weather information with Glacier FarmMedia. But you’ll need to pay attention.

The season began with so much promise — early rains and good spring weather had most farmers and crop prognosticators rubbing their hands in anticipation of high yields and great quality.

“Then we saw deteriorating conditions for canola, and other crops, from July to August,” says Burnett, speaking of the high heat of late summer. “It hurt yields in a number of crops, but it hit canola quite hard because that heat was there all the way through flowering.” Cereals were hurt, too, but the ultra-short flowering period of those crops helped limit the damage. Grain fill might be reduced, he says, but at least you get some crop. With the heat blasting canola throughout its long flowering period, there simply were no pods there to fill in many fields.

“The frustration for farmers is that just as the crop was deteriorating, the prices started to drop as well,” says Burnett. The price slide that began in July was due, in large part, to a great looking soybean crop south of the border. “A big U.S. soy crop puts a lot of pressure on canola prices.”

Contract lows hit in August, but then, in the lead up to September, prices rallied. “Part of that price gain was due to the realization that yield was going to be lower than expected,” says Burnett. “There were some pockets with good yield, sure, but it was going to be down overall.”

Just as canola prices were starting to swing back up again, another blow came in the first week of September: “We got the anti-dumping threat from China and that just crushed the market,” says Burnett. “That brought on new contract lows, and the market was in a very negative place.”

Still, it’s been over a month since China announced their anti-dumping investigation and nothing has happened. There has been no ruling, no announcement, no tariff and, in the meantime, canola prices have started to climb again, and a lot of canola has already been exported. So, until that other shoe drops, what should farmers do?

Market dynamics are shifting

The fact that canola prices have risen since China first announced its investigation is encouraging. Prices aren’t as high as they were last year, and Burnett thinks they might still be too low, but they are getting back to respectable territory.

He says this comes down to a few things, including the fact that global vegetable oil markets, particularly palm oil, have rallied. “We’re seeing contract highs for Malaysian palm oil right now and that rally has helped support all vegetable oils, including canola,” he says.

Perhaps more interesting is that the supply/demand equation for canola is changing in terms of who is driving demand, and how much canola has already shipped from Canada since the beginning of the global crop year, which was on August 1.

“Eight weeks into this crop year, Canada has already exported 1.76 million tonnes of canola,” says Burnett. “By the same time last year, we had exported only 565,200 tonnes.”

He says the sharp drop in prices is why export demand is so strong. “Yes, these exports are under threat due to the China situation, but we’re pricing it such that demand from other countries is up and they’re buying,” says Burnett, adding that during August, Canadian shipments to China totalled 718,000 tonnes, which was over double the previous year. “Canola export here is already well underway so if China doesn’t issue a tariff right away, it’s not really going to affect canola exports until 2025.”

On top of that, export markets, while still important, are starting to take a back seat to the domestic crush market. To wit: Agriculture Canada forecasts canola exports to be 7.5 million tonnes this year and domestic crush at 11.5 million tonnes.

But then domestic crush statistics from the end of July reveal that we have processed 11.033 million tonnes of canola during the 2023-24 crop year. “That’s the first time we’ve done over 11 million tonnes of domestic crush,” says Burnett. “In fact, there were only a few years before this when we did over 10 million tonnes.”

The balance in terms of which markets are important has switched, he says. “It used to be that the export market was king. Now it’s the domestic crush market, which means that export buyers now have to compete with crush companies for their canola.”

Having lots of buyers in a competitive market is great, but Burnett thinks too-low canola prices might be driving that competition too much. “We’ve made prices too cheap,” he says. At the beginning of October, canola contracts were at $622 per tonne, which is much better than the $541 per tonne contract lows of July and August, but nowhere near the more typical $700 per tonne contracts seen last spring.

“Can we get to that $700 range we’re used to trading at? I just don’t know if there’s enough tightness in the market for that,” says Burnett. “There’s potential to get to $650 or $660, which is still cheaper than last year, but it would moderate markets somewhat.”

For now, he says, prices balance on the knife-edge of what China will do. “The day China announces a tariff, prices will drop like a rock and farmers need to know that,” says Burnett. But they should also take heart in the fact that the longer that decision is delayed, the safer their 2024 canola crop is. “If China delayed their decision to late February or early March, when their domestic crop is harvested, that would still have an impact, but by that time most of our canola will have been shipped.”