WINNIPEG, Manitoba--There's a looming problem that's on the verge of surfacing in the Canadian canola market--many growers will be unable to fulfill their contracts due to lower production.
The drought across the Prairies dashed canola production estimates from the initially anticipated 20 million tons, to something that could be in the range of 15 million to 17 million tons. Although some in the trade suggested this year's crop could tumble down to 12 million tons.
"If you contracted at $15 per bushel and you can't deliver and the markets are at $21, they want at six dollar and a bit more," explained trader Bill Craddock, who also farms west of Winnipeg.
Craddock noted canola isn't the only crop on the region facing such dire straits, that wheat and oats will likely be in a similar situation.
"The grain companies are working with guys, but that means how much money are we taking from you? If you're three dollars out of the market, they're not going to let you off at 50 cents. They're not going to let you off at three dollars. They're going to want $3.25 or something like that. It's an ugly situation," he explained.
Added that, Craddock believes this year's drought is not a one-year anomaly, rather there have been reports indicating it could continue for another four years or more.
"The stuff I'm reading says the driest year is going to be in 2025. It's going to be the worst (drought year) in a century," he stated.
Given that canola is a difficult crop to grow in a drought, Craddock said it's very likely farmers will cut back on the acres they devote to growing the Canadian oilseed. He said this year he slashed his canola acres and switch to soybeans.
"The cost of production works out to be $80 to $100 per ton less," Craddock said.
With less canola likely in Canada's future, that won't bode well for the new processing plants being built on the Prairies, he said.
"I know they are building them for the future, but the future may not be here for a while," Craddock commented.
Source: Commodity News Service Canada, email@example.com
(END) Dow Jones Newswires