Price Risk Management for Canola 
Producers in the Northern Plains - Continue

EB-74, November 2000

Price Analysis

Data

Data were gathered from several sources on exchange rates (Federal Reserve Bank of St. Louis), canola futures (WCE) for nearby and specific contract months, Chicago soybean futures (soybeans, soybean oil, and soybean meal), and cash canola prices at Velva (ADM). Data for canola prices were monthly averages while other data were daily data which were used to derive comparable monthly averages. Prices were converted to U.S. dollars per hundredweight ($US/Cwt) and plotted for the period 1993 to 2000 (Figure 5).

Figure 5.

The Canadian cash (Vancouver) and futures prices followed each other closely from 1993 to 2000. The major deviation was the drop in futures relative to Vancouver cash that occurred in 1996, which reflects the change in basing points for canola futures from Vancouver to an area around Saskatoon, Saskatchewan. Comparison of Velva cash prices with other futures prices indicates changes in Canola futures most closely reflect Velva cash price changes (Figure 6). Changes in soybean oil and soybean futures are not as representative of changes in Velva cash prices, although soybean oil follows Velva cash prices more closely than do soybean futures.

Figure 6.

Seasonal Price Patterns

Velva Cash Canola Prices

Seasonal patterns for canola prices were examined for the marketing year (August to July). Individual years from 1993 to 1999 reveal a broad range of price behavior (Figure 7). Highs by year occurred in February for 1993 and 1994, May in 1995 and 1997, September in 1996, December in 1998 and April in 1999. However, the distribution of prices from 1993 to 2000 reveals that the pattern for Velva cash prices, on average, is to decline to lows in September and October and then increase to peaks in January and April before falling into the next marketing year (Figure 8).

Figure 7.

Figure 8.

Canola Nearby Futures

Seasonal patterns for nearby canola futures also reveal a broad range of price behavior in individual years (Figure 9). Highs for nearby futures occurred in June in 1993, March in 1994, May in 1995 and 1997, August in 1996, December in 1998 and October in 1999. From 1993 to 1999, average nearby futures indicate lows in September and October with prices increasing to April/May and then declining again to July, similar to that for Velva cash canola prices (Figure 10).

Figure 9.

Figure 10.

Canola November and May Futures

Patterns were also examined for two specific contract months (November and May). These contracts may be used for preharvest and postharvest marketing strategies. On average, the history of the November contract (1993-1999) indicates highs occurring in May with lows occurring in August (Figures 11 and 12). In contrast, the May contract exhibits a pattern where highs occur in November. May futures then decline to a low in February (Figures 13 and 14).

Figure 11.

Figure 12.

Figure 13.

Figure 14.

Exchange Rates

The pattern of exchange rates varies throughout the marketing year. However, changes from month to month are not dramatic for large periods of the marketing year (Figures 15,16 and 17). Marked declines did occur from January to April in 1993-94 and throughout the 1997-98 marketing year. The pattern of larger periods with minimal changes suggests that variability in exchange rates may be of lesser importance for canola growers, especially for shorter term hedges.

Figure 15.

Figure 16.

Figure 17.

 

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EB-74, November 2000