TORONTO – Oversupply is weighing down canola markets but the demand and price outlook for the crop are strong, says one of the world’s leading oilseed analysts.
“Canola is the right crop for 2009,” Thomas Mielke, Oil World analyst, told delegates attending the 42nd annual Canola Council of Canada meeting.
His optimism stems from prospects for continued strong demand for vegetable oil and waning interest in meal in 2009. In that type of environment, canola looks attractive to crushers due to its relatively high oil content and low meal output.
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World consumption of the 17 oils and fats Oil World tracks has doubled to 164 million tonnes per year in 2008-09 from 82 million tonnes in 1990-91. Much of that growth has occurred in soy, palm and rapeseed/canola oil.
Projections call for continued expansion in demand for the three key vegetable oils, especially in Asia, where there is a rapidly expanding middle class.
Meanwhile, the global economic slowdown has depressed demand for livestock products. Mielke said world meat production in 2008-09 is expected to grow by only 2.5 million tonnes, the slowest growth rate he can recall. That is reducing the rate of soybean meal consumption. Demand needs to be stimulated by lower meal prices.
“This is a good development for canola,” he told delegates.
In the short-term, the industry will have to work its way through an estimated 7.4 million tonnes of global canola carryout from the 2008-09 crop, up from 4.5 million tonnes the previous year.
The good news is that declining soybean seed and palm oil stocks should eventually elevate the entire oilseed price complex.
“Sooner or later the strength in palm and the strength in soy will pull up prices of rapeseed and rape oil,” he said in an interview following his presentation to delegates.
Mielke noted that 2008-09 will be the second consecutive year of declining soybean supplies, which is highly unusual. All signs point to a further deterioration of supply in 2009-10 due to a faltering South American crop.
He is forecasting 42.5 million tonnes of soybean production in Argentina due to drought, which is down from projections of a 50 million tonne crop back in October.
But there is another problem looming on the horizon. Argentine producers are fed up with the government’s 34 percent export tax and could hold back supplies this year.
“We need the South American beans. If the farmer is not selling, this market is going to be in trouble,” said Mielke.
He believes declining South American soy production is more than just a short-term anomaly, which bodes well for canola producers.
“Something is happening. The growth potential is lost in soybean,” Mielke told delegates.
“You should benefit from the declining supplies and declining competition from soy on the world market.”
He also gets positive vibes for canola when looking at palm oil supply and disposition charts.
Growth in palm oil output is slowing. World production is expected to rise 2.2 to 2.3 million tonnes this year after a five million tonne hike last year. Palm trees had been over-producing and are now taking a rest.
Palm oil prices have already risen in response, making the product less attractive relative to canola.
“You are likely to face higher demand,” Mielke told council delegates.
He encouraged growers in attendance to sell into that demand rather than waiting for sky-high prices. European rapeseed producers failed to do that last year and are now sitting on an estimated 1.85 million tonnes of carryout. Canada will have another 2.3 to 2.5 million tonnes of leftover supplies.
The last bit of encouraging news was an update on Ukrainian rapeseed marketing and production.
Exporters are all sold out of the 2008-09 crop, which means Canada will be meeting the world’s needs for the remainder of this marketing year.
And Ukraine’s winter plantings are down. He estimated 2009-10 production will be two million tonnes, about one million tonnes smaller than last year’s crop.
