Canada: Producers unprepared for canola price crash

Would have, could have, should have, is about all you can say about the missed opportunity to capture some amazingly high canola prices.

At the beginning of the year, the price expectation for the 2023 canola crop was around $19 a bushel. That’s what the futures market was indicating and that’s where crop insurance programs set their price.

How the mighty has fallen. The decline in canola futures has been steady and often precipitous. As of early June, the cash price expectation for canola this fall dipped below $14 per bu.

Assuming a 20 million tonne crop, that $5 per bu. or $220 per tonne decline adds up to a drop in value of around $4.4 billion, creating a significant change in the profitability picture for prairie agriculture. Many other crops have also seen prices erode, but canola is the biggie.

Very little new-crop canola pricing occurred when the outlook was much more buoyant. Hindsight has perfect vision, but few observers were predicting such a steep price decline.

In retrospect, many producers, including this one, should have taken steps to lock in historically high and attractive prices and not left pricing to chance. Pricing opportunities were missed for many reasons.

At the top of the list, the contracting debacle of 2021 was still fresh in many farmers’ minds. The deep and widespread drought that year put many producers offside on contracted production. They contracted more than they grew while prices skyrocketed. Once burned, producers have shied away from contracts that don’t have an act of God clause.

Options contracts are a way to lock in a canola price without production risk, but the upfront cost is a deterrent. In retrospect, wouldn’t it be great to have paid a premium to lock in a net canola price of $16 or $17 per bu. on a sizable chunk of your expected canola production?

It’s easy to ignore new-crop prices when the focus is on the growing season and producing a crop to sell. Maybe prices will take an upturn. Unfortunately, hope isn’t much of a strategy.

Producers can bravely say that they’ll just lock their bins and wait for prices to go back up. It’s easy to say, but hard to pay all your bills with that approach.

With all the new canola crushing capacity coming on stream, much of it spurred by renewable diesel production, all the talk has been about producing enough canola to meet the demand without totally turning off the tap on the export of raw seed.

Yes, the canola demand picture is positive in the long term, but most of the increased crushing capacity is a couple years away and even then, prices will still depend on world oilseed supply and demand.

So far, crops in most regions of Western Canada are off to a good start. If the growing season continues to be favourable and yields are good, that will help blunt the impact of the price drop, which has occurred on canola and many other major grains.

And the price picture is still unfolding. Maybe production problems somewhere else in the world or some sort of as yet unforeseen geopolitical event will cause grain prices to reverse their downward trend.

On the other hand, perhaps the price of canola hasn’t hit bottom yet. After all, the trend is still down.

Tags: Production, crop, futures, Market, canola, prices