Canada’s oilseed processing industry has navigated reasonably well through the economic storm waters caused by COVID-19.
But several unknowns are on the horizon, says Chris Vervaet, executive director of the Canadian Oilseed Processors Association (COPA).
Steady demand in vegetable oil and canola meal markets could give way to market uncertainty in the weeks ahead as the industry copes with widespread closures in the restaurant and hotel industries and disruptions in the dairy, slaughter and animal feeding industries, he said.
“Generally speaking, since the beginning of the (2019-20) crop year, we’ve been ahead of last year’s (crush) pace and we’ve been generally ahead of the record pace that we set last year,” Vervaet said in an April 30 interview with The Western Producer.
“We are on course, right now anyway, for a record crush by the end of the crop year. But, of course, there are many different unknowns going forward.”
“There’s been a lot of disruptions in the marketplace, and most notably for vegetable oil, food service (demand) is a big one.”
Last week, Statistics Canada published new data showing robust activity in the Canadian oilseed crushing sector.
Through the first three months of 2020, the total crush at Canadian oilseed processing plants exceeded 2.5 million tonnes, the highest crush volume ever recorded in the three-month period ending March 31.
Those numbers came on the heels of a record-setting December 2019 crush, which saw the highest-ever monthly volume at about 900,000 tonnes.
The figures reflect strong veg oil prices and strong demand through the entire 2019-20 crop year to date, Vervaet said.
However, the full market impact of COVID-19 on vegetable oil markets may not yet have taken effect, he said.
Vegetable oil processors are already feeling the market impact caused by hotel and restaurant closures, but reduced consumption in that sector has been mostly offset by increased demand in other areas in food processing, retail and some offshore business.
“For the short- and medium-terms, if we do see a protracted slowdown in the food service sector continuing, this will obviously continue to put downward pressure on vegetable oil demand and it’s really not clear at this point whether those other areas — food processing and retail — will continue to pick up the slack.”
Uncertainty in the transportation and logistics sectors also represent potential risks for Canadian oilseed processors, Vervaet said.
“In particular … as the railways continue to announce the downsizing of resources in response to COVID-19 — whether it’s on the labour front or locomotives — we do have some serious concerns about their ability to quickly readjust when the general economy begins to bounce back and what that might mean for rail service to our sector….”
Demand for canola meal from the dairy, swine and aquaculture sectors represents another potential risk.
Vervaet described the impact of COVID-19 on the North American feeding and slaughter industries as “a moving target.”
Recent disruptions in slaughter capacity are resulting in lower margins and supply chain disruptions at the farm level. That is likely to impact demand for Canadian soymeal and canola meal.
“There are so many different components and unknowns that … are going to be driving demand for both oil and meal,” Vervaet said.
Several factors and scenarios warrant close attention, he added.
In 2019, Canada exported more than 1.8 million tonnes of processed canola oil to the United States, at a value of more than $2.1 billion.
China, the second-largest buyer of Canadian veg oil, was just short of 875,000 tonnes in 2019, down from 1.16 million tonnes in 2018.