Market analyst wary of canola crush expansion

Demand rising With crushers increasing capacity, CWB official predicts lots of competition for seed

A market analyst for a leading Canadian grain company is questioning the wisdom of all the canola crush expansion happening in this country.

“I’m a little perplexed,” said Neil Townsend, director of CWB Market Research.

“It’s just interesting that all these companies are announcing major expansions when it looks like the physical seed is harder to procure.”

Richardson International announced March 20 that it is more than doubling the size of its plant in Lethbridge. That’s on top of another expansion project happening at the company’s Yorkton facility that will boost capacity by 25 percent.

Cargill announced late last year that it was building a new 850,000 tonne crush facility near Camrose.

Bunge is more than doubling the size of its plants in Altona, Man., and Fort Saskatchewan, Alta.

Townsend wonders where the companies will get the seed to fuel the new capacity, given the existing tug-of-war between crushers and exporters.

“It’s really counting on either totally kneecapping exports at some point, which hasn’t really happened this year, or some sort of economic calculation that I’m not quite figuring out,” he said.

Canadian processors crushed 7.13 million tonnes of canola last year while exporters shipped 8.29 million tonnes. Ten years ago, the crush was 2.13 million tonnes.

Townsend said the dramatic increase in crush volumes is creating fierce competition for canola seed.

“Usually when you’re having trouble getting the seed, you’d think you’d be a little nervous to spend a lot of money to build big expansions,” he said.

“There’s going to be a lot of competition for that seed in a year when they don’t hit a really, really (big) bumper crop.”

Pat Van Osch, general manager of Richardson Oilseed, thinks farmers can’t grow more than 22 million acres of canola given today’s rotations. Agriculture Canada projects 21.2 million acres in 2013, so there isn’t much room for expanded acres.

“Technology can bring solutions to that,” he said during an interview at the Canola Council of Canada’s annual convention.

“If you look out another 10 years, maybe we work past that limitation.”

In addition to developing ways to push rotations further, crop breeders are working on solutions for boosting yields and per acre oil output.

“If you can get more oil in the seed and you can get more seeds per acre, maybe that’s how we keep moving this industry forward,” said Van Osch.

He believes the crush sector will consume half of the crop in years to come, but there should be plenty to go around given the anticipated yield and oil enhancements.

“We’re going to continue to see some further growth in our industry. I think that’s healthy,” said Van Osch.

Joel Horn, president of Legumex Walker Inc., which last month shipped its first rail car of food grade canola oil from its new Pacific Coast Canola facility in Warden, Washington, said there is no let-up in sight for demand of the product.

Canola oil accounts for 70 percent of all vegetable oil consumed by Canadians but less than 10 percent of the U.S. market.

Horn said there is plenty of room for U.S. growth, considering there is a mandated demand for the product in healthy food legislation being passed from New York to California.

“It seems like there is going to continue to be a pretty large increase in consumption, so everyone is trying to get ready for that,” he said.

Legumex Walker’s Pacific Coast Canola plant can process 374,000 tonnes of canola annually once it is at full capacity. It was designed so that capacity can double in the future.

Townsend remains skeptical about the need for so much new capacity. He also questions the message from some crushers that canola’s price run has petered out and won’t be heading higher this year.

That’s not apparent when he looks at crush and exports this season. Both are ahead of where they should be based on Agriculture Canada’s supply and demand estimates.

“I mean, when is the next time we’re going to see any physical new crop canola here? Not until the end of August or middle of August at the earliest,” he said.

“I don’t see why the price would dissipate unless of course magically they find some more canola.”

Some market analysts speculate that Statistics Canada has underestimated the 2012 crop by as much as one million tonnes.

Townsend thinks that’s not the case, based on talks with growers.

“I don’t get the sense that their actual results exceeded their expectations or their hopes,” he said.

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