China’s canola pinch

A surprising amount of the void left by China’s exit from the Canadian canola market could be filled by other importers, according to a Canola Council of Canada official.

Brian Innes, vice-president of public affairs with the council, said certain target markets could pick up “millions” of tonnes of additional demand in the wake of China closing the door to Canadian exports.

“If China wants to stop our product, then we will find customers who value it,” he said.

The council believes Pakistan, Bangladesh, the European Union and the United Arab Emirates could all step up and purchase substantially more Canadian canola.

Pakistan and Bangladesh tend to be price-sensitive markets, but Canada doesn’t intend to give its quality product away.

“The focus is not on liquidating our product. The focus is on bringing value back to Canada,” he said.

China purchased 4.77 million tonnes of Canadian canola in 2018, which was 47 percent of total exports that year.

That is a lot of canola that needs to find a new home, but it also leaves Chinese crushers in a lurch.

Canada has approval to ship canola to 16 crush plants in China, which are primarily located in ports located in the south and the north.

That makes it highly unlikely that they will bring in domestically produced rapeseed from the vast government stockpiles stored in the interior of the country.

“All the plants we ship to are on the coast and they are designed exclusively for imports,” said Innes.

One option would be for those plants to source product from other exporters, but he thinks that is unlikely.

“There just isn’t the quantity of canola anywhere else to feed China’s market,” he said.

Australia is coming off a dismal 2018-19 crop that was 40 percent smaller than the previous year.

Production and exports are expected to rebound in 2019-20, but 60 percent of the country’s exports go to the EU, where it fetches a premium for being non-genetically modified.

Ukraine is the only other major player in the export market. The U.S. Department of Agriculture expects acres, production and exports to all be up 24 to 29 percent in that country in 2019-20.

But again, 80 percent of what Ukraine exports goes to the EU due to the proximity of that market.

David Mielke, senior analyst with Oil World, agrees with Innes that other countries are unlikely to backfill for the lost Canadian exports.

He said exports from Australia are about to dry up due to the drought-reduced crop.

“July to December, there’s not going to be anything moving out of Australia,” said Mielke.

In Ukraine there is another issue to consider.

“The problem in Ukraine is there are no exports to China possible due to some regulatory issues, where they need to be registered and approved (by) the Chinese,” said Mielke.

“Nobody knows if the (regulatory) process is shortened this year, but as far as we know, at the moment it’s not possible.”

Mielke expects China to import more cheap palm oil to replace its lost canola crush. He believes it will bring in an extra 700,000 tonnes of palm oil between September 2018 and September 2019.

Palm oil can substitute for canola oil in some products, but it is not a good replacement in others.

And Mielke believes palm oil prices will start to rise by September 2019, making it a less attractive substitute.

Innes said many of the Chinese plants that were using Canadian canola are swing plants that can switch to processing soybeans within days. However, soybean supplies are also in short supply due to China’s trade war with the U.S.

So there is a very real possibility that some of those plants will have to be idled, and it could be for a long time because resolutions to trade disputes with China tend to be slow to materialize, he said.

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