Current Canola Bounce

[rain]

I could not understand the big drop in Canola futures. The current bounce is it short covering or reality check?

Any thoughts?

[TOM4CWB]

Rain;

1. I understand that Brazilian Farmers are holding beans more strongly than people thought they would. The Real is appreciating... just like the CDN $... farmers are not willing to ship the 60% of Brazilian Beans to Port that must go overland by road... when transportation is the most expensive during harvest season... again narrowing the basis domestically... pre sold beans have taken care of most of the cash flow needs... presold beans do not crater the market when delivered... but did lower the market when the sales were done earlier in the year...

2. Brazil is having trouble shipping on time, causing importers to buy beans from the US, lowering projected US bean stocks for the end of this crop year.

3. The CDN$ is not as strong as it was a few weeks ago... even the Air Canada bankruptcy has to make a person question if Canada is the powerhouse Liberals claim it is... could the Anti American/ Japaneese/ Ausie/Philipeno/English WAR stand be kicking into gear in our economy?

What effect will this have on the CDN$? I would bet it will be negative!

THis should be good for our Canola sales... if we can now sell it!

[TOM4CWB]

Rain;

I see this;

04/02 10:41
The USDA reported today the sale of 110,000 metric tons of U.S. soybeans by private exporters to Spain for delivery during the 2002/03 marketing year.


Spain is also on side with the US led war.

Marketing wire services are saying that the Nov 03 Canola trading range is between $320 and $375/t with big resistance at $375.

Word has it that if we have a reasonble crop planted, and growing... $320/t will be the futures price for the fall.

With the mess the CWB has created on wheat and barley marketing... both for 02 and 03 crops... Canola just might get more acres than we think... if the price can rally another $15/t!

[melvill]

rain, the important point to understand about the fall in canola values is substitutability, ie. at what price can other edible oils and meal be purchased for as compared to canola oil and meal.

Certainly Canada had a very short canola crop but the relatively lower values of substitutes - soybean oil, palm oil, and other edible oils - meant that canola oil and meal and, therefore canola seed, were overpriced. The market took a while for that fact to sink in but, when it finally did, prices almost free-fell. There were warnings that the price fall would happen. Beginning in late November, several analysts were pointing out that canola was overpriced. They continue to say that as recently as yesterday when one report stated that "the fall in canola prices has moved it into a more competitive position in relation to other world oilseeds but it cannot really be considered cheap. . . just competitive." The same analyst suggests that the recent canola price turn around will require some stronger upward movement in soy oil, beans and meal markets.

It's very important to remember that canola can only operate in "it's own price world" for a very short time. Sooner or later the reality of substitutability has to kick in.

[rain]

melville the intersting thing is where is the evidence of replacing canola oil. Crush and exports are in line with forecasted levels. Statscan adjusted production up on a cleaner crop (less waist and dockage). This was impossible this year.

While we have been hearing about replacing canola oil with other oils where is the proof.

It was the adjustment up in production that really got canola into a free fall as far as I can see.

[TOM4CWB]

Lee;

The principal of substitution is not talked about in Discussions about the CWB single desk monopoly.

The control of prices, when done on a futures exchange in a transparent marketplace, still can overprice Canola and cause a meltdown in prices as you have just indicated.

How much more obvious can it be, that the futures transparent pricing of 10's of thousands of farmers... through various marketers and brokers... does not mean that farmers bid each other down. In fact the opposite has been the case in the last few years.

If the CWB were to allow farmers to bid up the CWB selling price... somewhat like has been done in the Canola, flax, domestic feed wheat and barley futures traded markets, why shouldn't we get more for our high quality human consumption wheat and barley?

If the Ukrane needs futures exchanges to trade these products... as the Canadian gov. insists by using my tax dollars in funding development of these infrastructures...

Why shouldn't Western Canadian farmers have these same transparent pricing signals?

I don't get it, is the CDN gov. saying "designated area" wheat and barley producers are the most stupid idiots on the face of this earth, that we will bid each other into despirate poverty...

if we were privy to transparent prices and had opportunity to risk manage for our own businesses?

How can we get to first base in the Ag Policy Framework, Business Risk Management, if these types of total counterdicting messages are being fed to us at the same time, by the federal government?

[charliep]

Just to give you a hard time Tom4cwb, a new record for turning a canola thread back to the CWB issue.

I would watch beans today as they head higher. Issues mentioned - tight US supplies, slower than expected sales southern hemisphere crop, uncertainty over US, etc., etc.

All I know is I have likely made another investment in my futures trading learning account (watching the time slip away on my May 540 put and the market headed the other way).

[melvill]

Yup, rain, the upward adjustment in production did have an effect but it just reinforced an already bad situation.

You said that crush and exports are in line with forecast levels. Where, you asked, is proof of substitution? First of all, which crush and export forecasts are you referring to. Forecasts for those two from last fall are larger than more recent ones that take into account the high price of canola relative to other oilseeds.

One "proof" that you might find interesting is that last fall the Vancouver spot canola oil price was about 7 cents US over soyoil export prices when a normal is about 2 cents US over. Now, that canola oil premium has apparently dropped to closer to the normal 2 cents. In addition, one crusher that I talked to two months or so ago said he was still crushing even though his oil inventory was getting very high. He was having a hard time selling canola oil. More likely he was having a hard time selling oil at the price he was asking for it. However, if the canola oil -to-soyoil premium has slipped that probably means the Canadian crushers have blinked and are now willing to sell oil at little or no premium just to relieve themselves of the excess inventory.

[rain]

The crush and exports I am talking about are canadian canola crush and exports.

Where can you find the selling prices for canola oil at. That for sure is would be relevant information to follow. Is this info avialble to the public?

[TOM4CWB]

Charlie;

I must bring the CWB into this topic... because the CDN. Gov. backs what the CWB does in risk mangement... and allows millions of dollars to be spent on promoting CWB marketing theology... and this does directly affect farmer's mentality when marketing Canola!

SO what risk management does the CWB do?

Looks like about NONE.

Except take hedge money from farmers who had the guts to manage risk through PPO's... the CWB takes all the risk money we created... and stuffs it in the CWB Contingency fund. BIG REWARD for our risk management decisions...

Now on Canola risk mangement, I am still smarting over last year's Canola Hedges... I didn't loose my shirt... but didn't make any money on the risk capital invested... over the last 5 years on this front. I can even out my income, this is good for mitigating risk for safety net program payments... and reducing taxpayer expences...

But what is the final outcome of doing all this work?

Do I hedge some Canola for the fall of 03?

I did some basis on Canola today, trying to get my marketer to cough up a better minimum price contract on Canola... Every body tells us to manage risk... but no body wants to pay the price in the hard work risk mangement is... often with nothing but a slap on the face and a boot in the ... as a reward...

"SEE YOU SHOULD HAVE DONE NOTHING... YOU WOULD HAVE BEEN WAY FURTHER AHEAD"

Perfect CWB theology!

[melvill]

Hey, Tom, if I am to believe you, the CWB or (not to mention any names) a company that promotes GMO wheat, is to blame for the SARS outbreak.

Please, let's keep the CWB debate to the CWB-related threads unless, of course as I heard suggested from a producer the other day, the CWB should be given the mandate for canola, too.

[parsley]

Don't even joke about things like that, melville. It causes nightmares.

Parsley

[rain]

melvill can you answer my question from before toms CWB boggie man behind every tree statement. Sorry Tom

[melvill]

Parsley, I MOST DEFINITELY AM NOT JOKING! In my work, I hear that idea about once a year from someone. Someone even once suggested that the CWB should take over marketing forage seed.

Rain, I don't get canola export prices directly from the export market because there is no place where it is traded in a transparent way. I get that info from a second source that likes to remain out of the public eye. However, I will find out if there is a public source for that info and pass it on.

Parsley, sleep well tonight. Grin!

[TOM4CWB]

Lee, you wrote;

“Hey, Tom, if I am to believe you, the CWB or (not to mention any names) a company that promotes GMO wheat, is to blame for the SARS outbreak.”


Can I assume this was from my Anti-Liberal outburst;

“there is a plague going on down east... and it is not just SCARS. It is based on Liberal corruption... that could not be sustained if Alberta was not sending 9 billion dollars a year to them... to keep them going!”

I thought I was HONEST enough to bear my soul... about risk management... which is central to discovering if we should be pricing... but I guess not... I brought up memories...

The memory of this Western Producer Article;

Bob Roehle will not listen in silence as farmers complain about the Canadian Wheat Board's performance in managing market risk.

As a public voice of the board, he figures it's his job to make sure that if farmers decide to dismantle the agency's export monopoly, they do it with their eyes wide open.

It could cost them the benefits of price pooling.

Annual price pooling is paying farmers an average price over a selling period to help stabilize producer income, he said.

"What you have is a big sugar daddy called the federal government who's underwriting operations of a $6 billion sales agency. What more do you need?"

If farmers understood how the board worked and the value of pooling, they might not be as anxious to embrace forward pricing, Roehle said.

Misinformation is being used to sway farmers to support breaking away from the monopoly, he said.

And within the board, it is often difficult to understand the opponents' point of view.

"There's a feeling within the board that we're on the side of angels and that if farmers could just understand the organization the way we see it, they'd understand."

So the CWB's BIG SUGAR DADDY, THE LIBERALS... have infected my mind... with a infectious desease directly involved with working with a "Sugar Daddy"... if you know what this is LEE!

My memory is very long... as it should be when dealing with risk management!

RISK Management is a very sexy word being used in the APF... over and over... yet the practical side hasn't even begun to be looked at.

What are the mental attitudes... that have been formed over generations of farming in the "designated area"... and how does actions by the CWB, plus our many different private marketers... of all our crops create the atmosphere of distress and chaos that many are feeling about risk management today.

Even you Lee... got offended when I brought legitimate risk management concerns to the table... and explained them as well as I could...

BIG Hug for you Lee... I am not offended... I hope you and Rain are not... I was trying to be helpful...

THe question is... and our Management team was tackling it today... should we be pricing Canola today... and for the fall of 03?

I am leaning towards... WE MUST GET STARTED... but I am afraid!