Canola situation not good, but could have been worse

Canadian canola might be shut out of China, a market that took more than 4.5 million tonnes of canola in 2018, but the export prospects for the current crop year are not catastrophic.

Agriculture Canada’s August supply and demand update forecasts 2019-20 canola exports to all buyers at nine million tonnes, down only 500,000 tonnes from 2018-19 and down about 1.7 million from two years ago.

Don’t get me wrong. The impact of the China-Canada conflict on canola sales is serious.

But analysts expect that the current lower price of canola and production problems in other regions will allow this country to pick up business to partly offset the hole in China-Canada trade.

Statistics Canada last week forecast canola production at 18.5 million tonnes, down 9.3 percent from last year due mostly to reduced acreage. It sees reduced yields in Saskatchewan but higher yields in Alberta and Manitoba, resulting in a national average yield of 39.4 bushels an acre, down only one percent from last year.

With much of the crop late in development and forecasts for cool harvest weather, the actual amount that goes in the bin could be smaller.

The combination of a smaller Canadian canola harvest, continuing robust domestic crush and the weak but not terrible canola exports mean that Agriculture Canada forecasts the canola carryout at the end of the current crop year will be about the same as the end of the crop year that just ended, at about 3.7 million tonnes.

That is a record large surplus and a weight on prices. Agriculture Canada forecasts a year average price range of $460 to $500 per tonne basis – Vancouver, compared to $497 in the crop year just ended and $539 two years ago.

However, given the loss of Canada’s biggest export customer, I would have thought things could be even worse.

We are only at the beginning of the crop year, with three weeks of export data from the Canadian Grain Commission, but those numbers are not bad.

In the three weeks, total canola exports total 542,800 tonnes, up 120,000 tonnes ahead of last year at the same point. That likely won’t continue but it is a good start.

Weekly reports do not say where the seed goes, but the CGC’s monthly reports have destinations. The most recent reports available, to June, show that a trickle of canola was still being shipped to China after it revoked Richardson International and Viterra’s licences in March. In May, 112,000 tonnes went to China and in June, 65,700 tonnes. Some oil and meal were also going to China.

Another reason for the modest optimism of keeping up exports is the crop problem in the European Union. Acreage reductions, dry weather and production problems because governments have banned neonicotinoids shrunk European production to 18 million tonnes, down about two million from last year and down four million from two years ago.

The USDA forecasts the bloc will import five million tonnes this year, up from 4.25 million last year and 4.15 million two years ago. European forecaster Strategie Grains thinks imports could be even higher, at 5.8 million tonnes.

For Canadian canola to be sold into Europe’s biodiesel market the product must be from farms certified as practicing sustainable production. So it is a good idea for farmers to get certified so as not to miss out on selling opportunities.

And even if Europe gets most of its imported canola from Australia and Ukraine, its increased pull from those suppliers could allow Canada to backfill in markets formerly supplied by those competitors.

Even with all the disruptions, global canola/rapeseed supply and demand is expected to be fairly balanced. The USDA forecasts that global carry over for 2019-20 will be 1.897 million tonnes, up only slightly from 1.887 million last year. It is just that a larger than normal share of that carryover will be held in Canada.

Canada’s canola crushers should have a good year with inexpensive seed and rising vegetable oil prices.

Agriculture Canada forecasts domestic consumption will total 9.6 million tonnes, slightly down on last year’s record 9.77 million tonnes.

As the amount of vegetable oil that goes into biodiesel around the world increases, consumption is expected to outpace production causing year-end stocks to decline. In U.S. soybean oil, which has close ties to canola prices, the USDA expects year-end stocks to fall to 1.5 million pounds, down from 1.74 million last year. It expects the year average price to rise to 29.5 cents U.S. per lb., up from 28 cents last year.

All of this is very early forecasting and likely cold comfort to Canadian producers facing some of the weakest canola prices in years and a late harvest.

The only real chance for market improvement is on the political side and that seems unlikely. The trade war between the United States and China escalated in recent weeks with additional tariffs announced by both sides. But it is not a total impasse. More talks are expected in September.

And the China-Canada tensions will likely continue until either the United States drops its extradition request for Huawei executive Meng Wanzhou, which is highly unlikely, or the Canadian court assessing the extradition request finds it improper and frees Meng.

A hearing in the Meng case is set for September but the actual trial won’t start until January.

To contact D’Arce McMillan, email newsroom@producer.com.

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