Less Dramatic Price Competition in Canada

VANCOUVER - Nov 24/06 - SNS -- Changing relationships between major agricultural commodities do not appear to be having the same kind of impact on short term gross revenue prospects for farmers in Saskatchewan as they are in the United States.

Cereal and coarse grains grown in Saskatchewan can be diverted into ethanol production as easily as corn in the United States. But, the processing infrastructure no longer not as developed as in the U.S. because government subsidies are significantly lower.

One exception is canola, where new crushing plants are being built to take advantage of rising European and world demand for vegetable oil to manufacture biodiesel. New crushing capacity has also been added in North Dakota, which in turn will need to draw seed from Canada to meet their oil demand.

On an revenue basis, canola generally competes well with other crops grown in Saskatchewan. But there is a chance the commodity will pull further ahead in 2007-08. Markets are clearly signalling a need for more acres next year, with the November 2007 futures contract averaging CDN $10 per metric ton (MT) above the March 2007 contract. That spread has narrowed in recent days as current crop futures rise more quickly than 2007 crop futures contracts.

Even so, there is general consensus that canola seedings will expand significantly in 2007, perhaps rising around one million acres to a record 14.1 million. Growers will likely pencil in better average prices for 2007 crop canola than this season and a likely widening of the income spread between canola and other major crops, including specialty crops.

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