Market Morsel: Fallen from Grace

Market Morsel

The canola market has been golden over the past year, as Canada was wracked with drought. As mentioned in previous reports, high prices are the cure for high prices.

Europe has planted large oilseed crops, Canada is back on track, Australia is planting a huge crop and recessionary fears have caused a step back in fuel demand.

This has resulted in a fall in local values. The first chart below shows the decline in new crop canola pricing since hitting peaks in May. It has been a considerable loss in value.

The basis level has also come under pressure, with our relative value dropping compared to both MATIF (French) and ICE (Canadian) pricing levels.

The prices on offer during May were extremely high, but the majority of farmers were unwilling to participate in selling. This is due to the concern about potential production risk.

My concern is the squeeze between high input costs and declining grain prices. This can cause margins to start slipping.