China’s canola ban results in tough crushing decisions

The curtailment of canola exports to China is creating a golden opportunity to add crush capacity in Canada but at the same time preventing it from happening, says an industry official.

“Blocked seed access to China makes it much more attractive to have processing in Canada,” said Brian Innes, vice-president of public affairs with the Canola Council of Canada.

That is because there will be more canola available at a cheaper-than-usual price.

Agriculture Canada is forecasting a bloated 4.5 million tonnes of carryout at the end of 2019-20. A senior executive with Viterra believes it could be closer to eight million tonnes.

It creates an ideal environment for companies considering investing in new Canadian crush facilities or expansion projects.

Or is it?

“It’s tough for companies to pull the trigger with so much uncertainty in the global environment for canola seed,” said Innes.

China could suddenly decide to reopen its doors to Canadian canola exports, and that would drastically change the existing industry dynamics.

Grain companies have invested about $2 billion over the last decade in plant construction. Crush capacity has doubled to 10.8 million tonnes in 2018.

Companies don’t take those investment decisions lightly.

“They want to have a strong sense of what the economics will be for the next few decades, not for the next few weeks or months,” said Innes.

The uncertainty surrounding China isn’t the only obstacle to investment in Canada’s canola sector.

One big bone of contention is that Canadian crush facilities have to comply with two different inspection regimes. The meal produced by plants is regulated through the Feeds Act while the oil is regulated through the Safe Food for Canadians Act.

“That’s one example of what makes an operating environment for processing complicated in Canada as opposed to, let’s say in China, for example,” said Innes.

Other jurisdictions such as the United States and the European Union are also more committed to biofuel production than Canada, he said, which is another obstacle to investment.

The council has set a target of 14 million tonnes of domestic crush capacity by 2025. However, that is predicated on the continued growth in canola production, which is far from certain given the China situation.

Innes said the processing sector realizes it is going to be “a significant challenge” to meet that target over the next five years, but the council is not yet ready to revisit the target.

Canada’s actual crush numbers are far below the stated capacity because three of the country’s 14 plants are swing facilities that can crush either canola or soybeans.

Those eastern Canadian plants have been processing soybeans because the margins are better.

Canada crushed 9.3 million tonnes of canola in 2018-19, 9.27 million tonnes the previous year and 9.19 million tonnes the year before that.

The last new plant was Cargill’s 850,000 tonne facility that opened in Camrose, Alta., in 2015. The latest expansion is the $120 million project at Richardson International’s plant in Lethbridge, which should be complete in 2020.

Chris Beckman, oilseeds analyst with Agriculture Canada, said his phone starts ringing when companies get serious about investing in crush capacity.

“I get a lot of anonymous, quiet phone calls from consultants looking for basic data,” he said.

His phone hasn’t been ringing lately.

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