Record canola imports alter U.S. oilseed balance sheet

CHICAGO, Ill. (Reuters) — American soybean users are importing record amounts of the crop from South America to help make up for an exceptionally tight supply of the oilseed in the United States.

However, Brazilian soybeans are not the only crop to benefit from the demand as record amounts of Canadian canola also make their way into the U.S.

The flow is expected to continue to northern U.S. crushers as long as processor margins remain firm and Canadian growers have excess supplies following a record crop last year.

Statistics Canada figures show that Canada exported a record 765,299 tonnes of canola to the U.S. from August to April, which are the most recent figures available. It was more than double the 338,784 tonnes in the same period last year and up 63 percent from the previous five-year average of 469,020 tonnes.

The flow of canola is expected to generate record production of canola meal and oil, which are likely to steal market share from soy over the coming months.

Overselling of the 2013-14 soybean crop to overseas buyers by U.S.-based traders is the chief reason for the imports, leaving domestic processors with tight inventories.

This comes after American growers produced one of the largest U.S. soy crops on record last year, which led to early expectations of a crop surplus going into the 2014-15 season.

Instead, domestic soybean crushers have been faced with an unprecedented shortage of soybeans for most of 2014 and have been forced to ship in supplies from other countries to sustain processing operations.

The main conundrum for Midwest-based soy crushers is that even after soybeans from other countries arrive at a U.S. port, they have a long journey across the country or up river before processing can take place.

The problem is less acute for processors in the upper Midwest and northern Plains because of closer rail and truck shipments from Canada.

The northern crushing plants are close to widespread canola production, which means they tend to have multi-seed processing capabilities that allow them to switch from soybeans to other crops whenever supplies or economics dictate.

It is widely believed many northern U.S. facilities increased canola processing and cut back on soybean crushing as much as possible.

If that is the case, it raises the possibility that demand for soybeans in that region runs a greater risk of falling than in other parts of the country until the new crop is harvested.

Harsh weather coupled with heavy rail congestion on key lines across Canada and the northern U.S. slowed the flow of canola early this year.

That left the door open to South American soybeans to take a majority share of U.S.-bound oilseed shipments early in 2014.

However, despite the rail problems, Canadian canola exports to the U.S. were at unprecedented levels in February, March and April, exceeding 100,000 tonnes a month.

Only once before, in December 2011, had U.S.-bound canola exports topped 100,000 tonnes.

U.S. soybean imports also set a record during the period, but the tonnage of rapeseed imports was actually larger and the crop should be given due consideration by anyone hoping to understand the U.S. oilseed market going forward.

Gavin Maguire is a Reuters market analyst. The opinions expressed are his own.

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