Canola oil premium may return

Booming demand | Asian consumers’ growing affluence sparks demand for quality food

SAN ANTONIO, Texas — The world might be preparing to give canola some of its price mojo back, analysts said at the Canola Council of Canada’s annual convention.


Booming demand for healthful vegetable oil, especially from Southeast Asia, gives canola a relative advantage in gaining new demand compared to soybeans and palm oil over the next decade, said Rabobank Agrifinance vice-president Sterling Liddell.


Anne Frick of the investment firm Jeffries Bache said soybean oil is likely to rebound in value soon compared to soybean meal prices, so the factors that make canola cheap compared to soybeans are probably close to reversing.


“The current cycle is getting very long.… We’re overdue for a cycle low (in soy oil prices),” she said.


“Canola prices have gotten so cheap compared to soybean prices, and oil prices have gotten so low relative to soybean meal prices, that could spur additional U.S. imports of both canola oil and also canola meal.”


Frick said she believes soybean meal prices are at the high end of their long-term range, while soybean oil prices are at the low end. The soybean oil cycle is usually 45 months, but this present cycle leading to the low is 58 months, so a turnaround is likely soon for both components of soybeans.


“We’re really stretching the envelope here on how low oil prices are going relative (to) meal prices,” said Frick.


She said the world is going into its second year in a row of surplus oilseed production. As well, world canola production exceeded consumption for the first time in three years this year.


However, the canola surplus is not a big problem by itself.


“Ending stocks are still fairly small relative to consumption,” said Frick, estimating the carry-out to use ratio at 8.2 percent.


The U.S. vegetable oil demand situation is also good because of the dearth of U.S. soybeans. 


However, world supplies are more comfortable, as shown in low soybean oil prices.


“We have a tremendous dichotomy between what’s going on in supply and demand and ending stocks outlook for the U.S. and for what’s going on in the world,” said Frick.


Liddell said canola is on a good competitive path over the next few years as Southeast Asia moves up the quality chain. 


When consumers are simply adding oil to their diet they usually opt for the cheapest product, which is generally palm oil. They switch to soybean oil products when they move into a more “convenience” style of eating and consumption.


However, canola is commonly used when consumers begin to demand high quality food products.


Liddell said that’s the case in China, and he sees the same thing happening in countries throughout the region, including populous Indonesia and Malaysia.


China has a new McDonald’s and a new KFC opening every other day, which tends to lead to canola being incorporated in more diets.


“You can see the demand for these products, for canola oil in particular, just have a good future,” said Liddell.


He said the canola industry should expect to see canola oil regain its premium value to soybean oil and soybeans as soybeans’ reputation declines and canola rises.


“Over the last few years, we have seen soybean oil become somewhat of the dog of the (veg oil) complex,” said Liddell.


Soybean oil is no longer always described as healthful, he added.


“Nobody’s arguing the benefits of canola oil.”


However, Liddell believes the best chance to add value to canola is to promote livestock producters to use more canola meal. Canola already has a premium value built into it, but canola meal trades at a discount.


“That’s where a lot of the opportunity is,” said Liddell.


“I would argue it’s meal. It’s enhancing the usage of canola meal in other rations throughout North America and elsewhere.”