Winnipeg Commodity Exchange Canola Values Reflect This Year's Crop Potential

Canola futures at the Winnipeg Commodity Exchange ended the month of May at their lowest levels for the current crop year. After spending the months of March and April in a trading range of approximately $30 per metric tonne, the July futures contract continued its price decline that started in November 2002 to close the month near its contract low for the year at $345.30/tonne. Factors contributing to the steady decline in canola prices are the rapid appreciation of the Canadian dollar, a larger carryout of old crop supplies than had been expected earlier in the crop-year, and an anticipated return to more normal production levels for the coming year.

The steady decline in the July canola futures price has caused the July/November price inverse to all but disappear, despite a decline in the November contract price off of its high set in January. The inverse between the two contracts peaked at $79.00/tonne in early November, but closed out the month of May at $0.30/tonne. This trend towards a "carrying charge" market has been very pronounced. The continuation of this trend will depend on a number of factors including old crop carryout and the size of the new crop.

Recent market activity has caused the canola board crush margin to improve from its relatively low level last fall. The fall in the price of canola combined with relatively strong prices for soyoil and meal have outpaced the strong advance of the Canadian dollar to bring the board crush margin to its highest levels of the crop year. The board crush formula used for illustrative purposes is as follows: [(CBOT Soybean Oil * 2.0462 * 0.40 * US Exchange Rate) + (CBOT soybean meal * 0.75 * 0.6 * 1.102 * US Exchange Rate)] - WCE Canola Seed = Canola Board Crush in Cdn $

Note: 22.0462 is converting soybean oil into metric values; 0.40 indicates that approximately 40 percent of the canola seed is oil and 0.60 indicates that approximately 60 percent of the canola seed is meal; 0.75 indicates that canola meal has approximately 75 percent as much protein as soybean meal.