China may import less canola

With canola supplies fast disappearing, market must adjust to ration demand


Weakening vegetable oil demand from China could slow the flood of Canadian canola going to that country. 


“There was certainly talk of them slacking off canola, and that’s exactly what it needs to do to kill some demand,” said Ken Ball of P.I. Financial.


Given the record strong pace of exports and domestic crush to date, there is the potential that canola supply could run out before the end of the crop year.


To prevent that, a combination of weaker demand and higher prices compared to soybeans and other vegetable oil crops is probably needed.


Mike Krueger of the Money Farm thinks canola prices will stay firm, even if soybean prices fall again like they did in March. There is a glut of soybean supply in the world markets, but canola supplies are short.


“I would think you’ll continue to find some hard spots just because your stocks are so low,” said Krueger.


Canola’s strength through the winter was in marked contrast to soybean oil, which usually sets its price trend. 


Soybean oil prices have been falling since December, while canola generally stayed strong at more than $500 per tonne range until a month ago. Canola has recently been stronger than soybean complex prices.


Reports of crusher losses in China and growing palm oil and soybean supplies in China have some predicting that Chinese import demand for all oilseeds will weaken. 


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Chinese crushers continue to need soybean imports to produce enough meal for the country’s huge livestock sector, but veg oil supplies are thought to be getting heavy. 


At the same time, a record Brazilian soybean crop and a good Argentine crop are relieving any remaining worries about soybean availability, Krueger said.


“Overall, I think oilseeds are bearish,” said Krueger. “I think you could take November (soy)beans down to $9 (per bushel.)”


A 60 cent selloff would reflect the heavy soybean stocks that are likely if American farmers plant six million more acres this spring and get a decent crop, Krueger said.


“That would likely boost ending stocks by 50 percent, he added.


Rich Nelson of Allendale Inc. said rumours of weakening demand from China because of weak vegetable oil prices are in the market but not a major factor.


“I would expect a small break from China,” said Nelson, adding China tends to have a seasonal weakening at this time of year.


Everybody expects Asian palm oil production will grow, Nelson said, and that would be bearish for soybean oil prices.


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“We expect to continue a downtrend here,” said Nelson.


The biggest impact on soybean oil prices will be from crude oil prices, he added. With vegetable oil now directly tied to energy prices because of biodiesel, the gigantic energy market is likely to set the tone for soybean oil and other vegetable oil prices more than food market demand.


A rising crude oil market could lift vegetable oil prices, regardless of crop-specific fundamental factors.


“This market is really waiting on energy prices to rebound,” said Nelson.


Canola will probably also continue to see strong demand from crushers in Canada, even if Chinese vegetable oil prices fall, Ball said. The crushers tend to lock in margins well ahead and probably aren’t subject to nearby fluctuations in the last few months of the crop year.


If anything, canola prices still need to rise, even with softer de-mand for vegetable oils overseas, to ration demand so that canola supply does not completely run out. The crushers might supply that price boost.


“We should see some very aggressive basis quotes popping up,” said Ball.


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