The biggest driver in this year’s canola market will be the fierce competition shaping up between exporters and crushers, says a Bunge spokesperson.
Nick Hoyt, trader and risk management specialist with the company in Canada, is forecasting a record 15.9 million tonnes of canola supply.
“How much of that the (crush) industry will be able to get its hands on in the next year before the next crop will be the big question,” he told Agri -Trend’s Farm Forum in Saskatoon.
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Bunge expects Canada to export eight million tonnes of seed and crushers to process 6.5 million tonnes, leaving only one million tonnes of carryout.
“Ultimately, what the market is telling us is that it’s willing to pay for it and you should be working towards low carryout numbers,” he told producers.
He expects the European Union needs to import 550,000 tonnes to compensate for a poor rapeseed crop. Crushers and exporters will ask Canadian growers to become certified to the EU’s new sustainability regulations.
Australia could fill a lot of the EU demand with a crop that could be as large as three million tonnes, up from 2.2 million last year.
China is the wildcard. Imports could rival the record 2.8 million tonnes of a few years ago if the country continues to buy at the current pace. Bunge penciled in 2.5 million tonnes in its supply and demand estimate, but it could easily be higher.
It’s still uncertain whether China will focus on seed sales like it has done with soybeans or if it will buy a mixture of canola seed and oil. It has been mostly seed sales so far this year.
“If they continue to do that, we should see the crusher is going to struggle further,” said Hoyt.
Biodiesel demand is another key consideration for canola markets. The EU will produce an estimated 10.5 million tonnes of the biofuel this year, up from 7.5 million tonnes four years ago.
However, the real growth is in Argentina, Brazil and the United States, which will produce nine million tonnes combined this year, up from 4.5 million tonnes four years ago.
“We’re in the midst of a (biodiesel) growth phase where the ethanol growth phase ended about a year ago,” said Hoyt.
The burgeoning demand is driving down world vegetable oil stocks. Bunge is forecasting a 4.7 percent stocks-to-use ratio, which is the lowest in many years.
“Ending stocks aren’t growing and we expect this to continue,” Hoyt said. “This is what ultimately is going to play into the Canadian canola grower’s hands.”
An emerging pattern in farmer selling is another key market factor. It used to be cyclical and predictable, but growers are building storage and holding onto their stocks a little longer as they make more money.
“It has caught a lot of commercials and the physical guys off guard,” he said.
Despite all the bullish factors in his presentation, Hoyt was a little bearish when asked where prices are heading. He said the lack of speculator interest in the canola market and a good-sized Canadian crop will likely force prices lower by spring.
