Winnipeg Commodity Exchange New Crop Canola Futures Prices Fell Sharply In July

New crop canola futures prices at the Winnipeg Commodity Exchange fell sharply through the month of July. The November 2004 canola futures contract closed the month of July at a life-ofcontract low of $327.70 per metric tonne. The price dropped $33.50 per tonne from the closing price at the end of June, which equates to an over 9 percent decline in value. The price of the November 2004 contract is $80.00 per metric tonne lower than, or almost 20 percent off of, the contract high established as recently as May 7, 2004. The decline of new crop futures prices is largely due to fundamental factors, including favorable growing conditions and the anticipation of a large canola crop in Western Canada, an expected record large soybean crop in the United States this fall, and the expectation of large soybean crops in South America this coming growing season. Trade sources suggest that given the expectation of abundant supplies and barring any unforeseen setbacks in growing conditions, any price increases will likely need to come from very strong demand.

Old crop futures also sold off sharply as the 2003-2004 crop year came to an end, as the nearby futures price for both WCE canola and CBOT soybeans dropped considerably from their early spring peaks.The price decline came in spite of the fact that season ending stocks for both canola in Canada and soybeans in the United States are relatively tight. However, the severity of the supply shortage for old crop soybeans in the United States, that some analysts predicted, never materialized and contributed to WCE canola futures prices falling along with CBOT soybean prices.

While the price of new crop canola seed has fallen sharply in the past few months, the price of soybean oil and soybean meal futures has fallen even more. This has resulted in a fairly sharp decline in the board crush margin for new crop canola.For illustrative purposes, the board crush formula used is as follows: [(CBOT Soybean Oil * 22.0462 * 0.40 * US Exchange Rate) + (CBOT Soybean Meal * 0.75 * 0.60 * 1.102 * US Exchange Rate)] - WCE Canola Seed = Canola Board Crush Margin 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.