Chinese demand for canola hasn’t materialized as anticipated, which means growers sitting on old crop might not see the end-of-season price hike they hoped for.
“We don’t have the potential for a super strong squeeze on basis levels like we typically do at the end of the year,” said a Canadian canola trader.
The China National Grain and Oil Information Centre reports that a 12.4 percent increase in 2008 rapeseed plantings offset production losses from the extensive damage caused by snowstorms in January.
The agency projects 12 million tonnes of rapeseed production, which is identical to the 2007 output.
Read Also
USDA’s August corn yield estimates are bearish
The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
That jibes with what Rachel Luo, Alberta Agriculture’s trade director for China, Hong Kong and Taiwan, has heard.
She said the winter storm affected 7.41 million acres of crop, resulting in a 1.7 million tonne reduction in rapeseed production. But increases in spring and winter crop acreage should boost output by 1.5 million tonnes.
A 200,000 tonne shortfall would amount to about a 70,000 tonne reduction in rapeseed oil compared to last year, which accounts for a paltry 0.3 percent of China’s vegetable oil consumption.
“The Chinese government stated that the damage of the winter storm wouldn’t have too much influence on the market supply,” said Luo in an e-mail response to a request for an update on China’s rapeseed crop.
Judging by the lack of Chinese demand, those reports seem accurate, said the Canadian canola trader. He isn’t getting any bids, which means his buyers are anticipating quick access to cheaper off-the-combine seed.
“I don’t think the damage was as great as earlier perceived,” he said.
Canadian canola exporters had shipped an estimated 500,000 tonnes of seed to China by the end of March. They were hoping for another 100,000 tonnes of demand before the end of the crop year to lower carryout stocks to less than a million tonnes.
“The way things are going right now, that might not happen,” said the trader.
When news of China’s weather problems broke, some traders forecast a canola carryout of 750,000 tonnes. Projections are inching their way back up with one grain company estimating as much as 1.2 million tonnes of residual supply.
The unnamed trader still believes stocks can finish under one million tonnes due to strong demand from the United States, Mexico and the United Arab Emirates, but those sales are already on the books.
Carryout probably won’t reach his goal of 880,000 tonnes unless China has a change of heart and buys three cargoes toward the end of the 2007-08 marketing campaign.
“That would snap basis levels a lot firmer. Right now it doesn’t feel like that’s going to happen,” he said.
The exception could be some strong basis levels at domestic crush facilities looking for supplies before harvest.
While the China situation is disappointing and could mean canola values won’t be as strong as soybean values south of the border, it is not terribly bearish because the grain and oilseed complex remains strong, said the trader.
And a lot can happen between now and the end of the Chinese harvest. There are reports that 2.6 million acres of the Chinese rapeseed crop are suffering from sclerotinia infection, a disease that could worsen during the warm weather and frequent rainfall of the April through June period.
Even if Canadian canola carryout ends up at 1.2 million tonnes, that would still be a 34 percent reduction from 2006-07 carryout.
“It’s still going to be relatively tight,” he said.
