Canada’s canola industry needs to dial back its ambitions for exports to China because there’s little chance they will be as large as many hope.
That was a repeated message from Felix Muller, head of global soft seeds for Chinese crop trading giant COFCO International.
“Demand in China is highly price sensitive,” Muller said at the Grain World conference. “Once we reach this four, four-and-a-half million tonne territory, it seems really that we are stagnating.”
Instead of expecting China’s canola imports to hit 4.7 million tonnes in the 2017-18 year ending in April, COFCO has reduced its expectation to four to 4.4 million tonnes.
And by 2020, instead of imports surging to about six million tonnes, it thinks Chinese canola imports won’t rise much beyond today’s rate.
“The most realistic scenario is that China will not import more than four and a half to five million tonnes.”
Muller acknowledged that this is a “minimal and marginal” increase compared to soybean’s rocketing import increases, but that’s the problem: canola doesn’t compete well with soybeans for China’s crushers.
“We are crushing for protein in China and not for oils,” said Muller, explaining why canola’s premium oil value in most markets doesn’t seem to hold in China.
“The big demand factor in China is protein rather than vegetable oil.”
Muller said canola has taken a back seat to soybeans largely because the beans contain a higher percentage of protein meal needed in China’s rapidly growing livestock herds.
Soybeans are also used in tofu and soy milk.
As well, canola is often more expensive than soybeans or palm oil.
“Soybean crush margins have been superior to canola for an extended period of time,” he said.
The U.S. Department of Agriculture forecasts China will import 97 million tonnes of soybeans in 2017-18. COFCO believes 100 million tonnes is possible.
“So the clear preference to satisfy the protein demand is crushing beans, not canola,” he said.
This is bad news as Canadian farmers are expected to plant more canola than ever next year. Some projections see a 24 million tonne crop.
“Where will it all go?” Muller said.
A silver lining is that China’s crush capacity has risen a lot in recent years, leaving open the possibility that it can accept more oilseeds if and when it needs them.
To break this limitation, Canada’s industry will need a new strategy.
“We need to find more premium outlets in China for the oil,” Muller said, adding crush margins also have to remain attractive.
However, banking on finding premium markets isn’t the soundest way to form future expectations. Muller said canola can always find a market in China, but that won’t happen if canola has a premium price.
He said high relative prices for canola earlier this year already cut Canadian sales to China, and that demand can’t be replaced there.
“This is irreversible and we need to make sure we do not lose additional business to soybeans,” said Muller. “High premiums over soybeans is not a sustainable environment right now in China to attract demand.