Canola prices will likely see sharp swings, Cargill merchant says

Canola prices, it seems, will be up and down like a yo-yo this year.
Cargill grain merchant Gerald Girard paints that type of outlook for prices of the yellow-flowered crop seeds.
Supplies are so tight and demand so strong, rumours alone will drive rapid and sharp price swings, he told a Canadian Wheat Board market outlook seminar in Moose Jaw Thursday.
"If the weekend forecast is for rain the price will fall. If the rain doesn't come it will go back up on Monday.
"If the rain comes in two days it will fall."
Historically record low stocks coupled with heavy demand are behind rising canola prices, he said.
"I wish I knew what the peak will be."
Last fall he advised the peak price was $600 a tonne. When that was passed in November, he estimated a $700 peak.
In February the price hit $750 a tonne. Past record peaks were $450 a tonne.
"We're in uncharted territory. Analyzing (price trends) with charts no longer works," said Girard.
Markets are so tight that a one-bushel per acre change in yields can dramatically alter prices.
Canola farmers patiently waiting for higher prices have been rewarded, but the Cargill grain merchant isn't sure wait-and-see will continue to pay off.
"I think there's a lot of old crop left out in the country to market."
A sudden shift in prices could send the trend upwards.
Historically, canola prices have responded to annual two per cent to five per cent growth in the food market with an increase as healthy vegetable oils gained market share.
A new demand - biodiesel production - has fuelled canola prices.
The U.S. biodiesel industry, with 171 plants producing at one-third of capacity, has just begun to demand vegetable oil.
More than 100 plants are under construction or planned towards the objective of a three fold increase in biodiesel to meet mandated blends.
The plants need $70 per barrel of oil and $1 per gallon subsidies to break even, he said.
"The big question is will government continue the mandate if there is a recession?"
Pointed questions are being asked about the subsidies and mandated blends, he said.
Although not expecting much increase in the 18.3 million planted acres of Canadian canola, Girard said specialty canola production with high oleic acid content will reduce acreage of generic canola.
Specialty canola acres grew by 80 per cent in 2007, he said.
Biodiesel will remain influential on canola prices, but Australia is using GMO canola for the first time to increase production and may affect prices, he said.