Chinese imports running three times 2011 pace | Prices continue to rise even as producers harvest
Canola prices continue to rise as farmers continue harvesting this year’s crop, which used to be a rare occurrence.
“It’s counterintuitive. It doesn’t happen very often in most markets but over the last five to 10 years in canola it has happened more often than not,” said Brenda Tjaden Lepp, chief analyst with FarmLink Marketing Solutions.
“You get a big increase based on yield results or surprisingly big demand, and the surprisingly big demand is always China.”
Commodity News Service Canada Inc. reports that a record canola export program is in place for the September through November period out of Canada’s West Coast.
Tjaden Lepp said China is a big part of that program.
“They’re no dummies. They know that markets tend to be at their lowest at harvest time and so they typically come in and take on some sizable coverage in the fall period and we see that again this year,” she said.
China has been a voracious consumer of Canadian canola all year. It imported 1.75 million tonnes of the oilseed during the first seven months of 2012, which is more that three times the amount purchased during the same period last year.
The U.S. Department of Agriculture is forecasting 13 million tonnes of Chinese rapeseed production in 2012, which would be the smallest crop since 2008.
That, along with short soybean crops in South America and the United States, is fuelling strong demand for canola.
However, exports will be limited by China’s blackleg restrictions. Shippers are allowed to deliver canola to only six crush facilities, which have a combined capacity of 2.8 million tonnes and are located outside China’s rapeseed growing regions. Canada’s 2011-12 export program to China was 2.7 million tonnes.
Rumours surfaced earlier this year that China and Canada were closing in on a solution to the blackleg trade barrier.
However, Canola Council of Canada vice-president Jim Everson was quoted in a Reuters story saying any change to the existing protocol wasn’t likely to be made before early 2013.
Tjaden Lepp said it’s becoming apparent that Canadian crushers are getting nervous about supply. Basis levels that were -$10 to -$15 in the spring for fall delivery fell to -$40 to -$50 when everybody thought the crop was going to be a bin buster and are now back up to zero.
“Over the last few weeks, we’ve seen the basis really move and I think that’s a function of everybody on the ground in the countryside thinking, ‘oh, oh, this crop isn’t as big as we thought and we’ve got all these sales on the books and we’ve got good demand for forward position so we better get some coverage,’ ” she said.
The canola council is estimating 15.1 million tonnes of Canadian production, which is well below pre-harvest expectations of 16.4 million tonnes. Larry Weber of Weber Commodities Ltd. is forecasting 14.2 million tonnes but thinks it could easily be lower than that because of smaller-than-anticipated harvested acres.
It’s shaping up to be a real tug of war between exporters and crushers this fall.
Tjaden Lepp doesn’t know how far prices can go before China starts backing away from the market. She is shocked that China was Canada’s top canola customer in 2011-12 despite the high prices.
The demand outlook is even encouraging for canola meal because of the shortage of feed.
“It has always been a bit of a dog. Nobody really wants it, nobody really knows how to feed it,” she said.
“This might be the year that a lot of livestock feeders get used to canola meal.”