Canola crop options – Sell, replace or store

“Other than sales commitments already in place, a question is what to do with canola inventory,” says Neil Blue, provincial crops market analyst with the Alberta government. “Should it be sold to take advantage of these still high prices? Should it be sold and replaced on paper to capture a potentially higher price? Should it be stored to await possibly higher prices, while taking precautions to ensure safe storage?”

An important first step in marketing is to know your product. Submit representative canola samples to a few buyers and possibly the Canadian Grain Commission under their Harvest Sample Program. Blue notes that some buyers may pay a premium on oil content above a threshold level.

One consideration is the need for cash flow to pay outstanding and upcoming expenses. An alternative to selling canola for cash flow needs is to use the federal Advance Payments Program to borrow against crop inventory. The interest-free limit has increased from $100,000 to $250,000 for the 2022 and 2023 program years.

“An alternative after pricing canola is to replace some of that volume with paper positions by buying deferred futures positions or by buying call options. With an improved canola supply this year, the canola futures market has returned to a more typical carrying charge situation, where deferred futures prices are higher than nearby prices.”

For example, the May 2023 canola futures price is $16/tonne higher than the November 2022 canola futures price.

“With the futures market in that carrying charge situation, buying deferred month futures or call options has a disadvantage. As time passes, the carrying charge erodes. That makes it more challenging to benefit from a replacement strategy because the canola futures need to rise enough to offset the eroding carrying charge.”

Storing some canola may also be a good decision. Although most canola was harvested in dry condition, producers must pay attention to the condition of stored canola. Canola can even heat at low moisture levels, especially if binned warm.

“There are several marketing alternatives to consider for canola. Often, compromise is a good strategy, that is price some, store some, and possibly replace some on paper by using your own brokerage account or a similar strategy though a grain buyer. Remember that nobody knows for sure what the market will do,” says Blue.

For more information, see:

Agricultural Marketing Guide

Contact

Connect with Neil Blue for more information.

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