The USDA estimates the country will buy 4.1 million tonnes, mostly from Canada, but the recent blockade is a wild card
China is still going to import a heck of a lot of canola in 2019-20, according to the United States Department of Agriculture.
In a May 3 report, the USDA’s agricultural attaché to China estimates 4.1 million tonnes of imports, up from four million tonnes this year but down from the 4.7 million tonnes imported in 2017-18.
Almost all of that will be from Canada. The report doesn’t say how that will happen, considering China has pulled the licences of two of Canada’s top exporters.
“I think those are pretty optimistic numbers,” said Derek Squair, vice-president of merchandising with Providence Grain Solutions.
He doesn’t think the 2019-20 sales program to China will be anywhere near that high.
“It could be down as low as 2.5 million tonnes or lower than that,” said Squair.
However, Canadian canola oil shipments to China could be substantially higher.
It depends on how determined China is to hold Canada’s feet to the fire.
Neil Townsend, senior market analyst with FarmLink Marketing Solutions, doesn’t have a problem with the USDA’s estimate.
He said there is a core demand for Canadian canola in China that is inelastic. Some Chinese manufacturers have health claims on their food products that can only be met by using canola oil as an ingredient. And the aquaculture industry doesn’t have a suitable substitute.
“I think some people are thinking maybe we’ll export zero to them next year but that’s impossible,” said Townsend.
He can see a scenario where a Chinese state-trading-enterprise such as COFCO sources canola from companies such as Patterson Grain or Louis Dreyfus in Canada and ships the cargo to itself.
“There’s a lot of ways to get around it,” he said.
Grain industry analysts are having a tough time coming up with supply and demand estimates because of the uncertainty of the China situation.
Squair is at the optimistic end of the spectrum because he believes Canadian growers reduced acres more than Statistics Canada estimated.
He forecasts a 10 percent decline versus Statistics Canada’s seven percent reduction.
That would drop plantings by 2.2 million acres compared to last year and shave off 2.2 million tonnes of production, resulting in a 2019-20 carryout of 1.9 million tonnes.
“That’s an OK carryout,” said Squair. “We can work with 1.9.”
Townsend isn’t as optimistic. He thinks carryout will be about one million tonnes higher.
“Canola doesn’t just have a China problem, canola has a soybean problem,” he said.
Townsend believes the cheap and plentiful world supply of soybeans will eat into canola demand in countries like Japan, Mexico and the United Arab Emirates.
Analysts with Glacier FarmMedia’s MarketsFarm are even more pessimistic. They are forecasting 4.67 million tonnes of carryout in 2018-19 and 4.49 million tonnes in 2019-20.
They expect the loss of the Chinese market to push canola prices lower in an attempt to regain other traditional markets. That downward pressure will be exacerbated by slumping soybean prices.
“This downward spiral will continue to pressure prices through the 2019-20 marketing year,” they said in a MarketsFarm Special China Report.
“The message is clear, sell canola and soybeans on rallies, even if prices are not what they have been in recent years.”
MarketsFarm is also predicting that China’s trade spat with China could last well into 2020.
“Farmers are wise to hunker down for a prolonged period of low prices,” it said.