Growers should seriously consider selling old crop canola and locking up some new crop production at today’s values, says an analyst.
Marlene Boersch, managing partner of Mercantile Consulting Venture, said $23.50 to $24 f.o.b. the farm for old crop canola and $17.50 to $18 for new crop are good values depending on location.
“These are some very, very reasonable targets,” she told growers attending the Saskatchewan Crop Organizations 2022 conference.
Boersch encouraged farmers to book some new crop production at today’s values but keep some to play with too because it is dry heading into 2022 spring planting.
Canola supplies are expected to remain tight into summer due to the good pace of crush.
She is forecasting a paltry 426,200 tonnes of carryout for the 2021-22 crop based on nine million tonnes of crush and 4.76 million tonnes of exports.
Crushers need to process a healthy amount per year to maximize margins, so they have a vested interest in keeping product flowing through their plants.
Canadian crushers processed 3.1 million tonnes of the crop in the first four months of the 2021-22 campaign, down 11 percent from the same time last year.
Meanwhile, exports have been decimated. Year-to-date shipments are down 44 percent from last year’s levels.
Boersch expects a seven percent jump in Canadian plantings to 22.5 million acres in 2022.
She is forecasting a big rebound in production to 20.9 million tonnes, up from what Mercantile estimates was a 13.4 million tonne crop in 2021.
Her 2022 forecast is based on average yields but she acknowledged that may be optimistic because there is often a yield hangover following a drought year.
Carryout will blossom to 1.57 million tonnes, but that is still relatively tight. Boersch is forecasting a massive rebound in exports to 10 million tonnes and 9.5 million tonnes of crush.
Flax advice
Her advice to flax growers was unequivocal.
“Make absolutely certain you have sold all current crop,” she said.
While a return to $45 per bushel flax is possible, she believes a market downturn is more likely.
Buyers in the United States appear to be covered and Canadian flax is overpriced in China and the EU.
“It would require that they run out of options before they return to us,” she said.
The flax market is extremely tight with Mercantile forecasting 30,000 tonnes of carryout in 2021-22, resulting in a seven percent stocks-to-use ratio.
That is expected to change in 2022-23. She is forecasting a five percent increase in acres and near-normal yields.
Production is forecast at 610,000 tonnes, nearly double the 346,000 tonnes harvested in 2021.
With a 365,000-tonne export program, that will result in 140,000 tonnes of carryout and a bloated 27 percent stocks-to-use ratio.
“Given those numbers the tightness of flax would ease quite a bit,” she said.
Her export number is fairly conservative based on anticipated stiff competition from the Black Sea region, especially into the EU.
“There is very much a juggling going on for the European market,” said Boersch. “They prefer our quality over some of the Eastern European material but price often times speaks its own language.”
She noted that in 2018, the transportation cost for shipping flax from Canada to Belgium was US$92.50 per tonne versus $134.30 from Kazakhstan to Belgium.
In 2021 she estimates the costs were $139 and $149.30, respectively.
“The spread has decreased and our freight advantage has mostly disappeared because of high ocean freight,” said Boersch.
Russia, Kazakhstan and Canada each control about one-quarter to one-fifth of world flax exports, so the competition is fierce.
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