With canola futures prices the lowest since 1987, it is hard to deliver an optimistic message about the crop, but Thomas Mielke, editor of the influential oilseed newsletter Oil World, gave it the college try.
His optimism, displayed in a market outlook delivered at the Saskatchewan Canola Development Commission meeting Jan. 11, applied to the long-term outlook. But even his views on this year were less pessimistic than other analysts.
“The world market is very dynamic with strong demand growth, which canola prices do not indicate and which could lead you in the wrong direction,” he said.
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“Long term, I’m very optimistic about the canola price outlook but not short term. Short term is a very difficult adjustment period (linked to crusher capacity).”
The current market situation illustrates how a strong demand pull from Europe that should raise prices in Canada can be only partly accommodated because of trade restrictions on genetically modified crops and a lack of crushing capacity.
Mielke said government incentives for biodiesel in major European countries have caused demand for rapeseed and canola oil to soar to a level that European crushers can’t meet.
Canola is the preferred feedstock for biodiesel in Europe because it has higher oil content than soybeans and the oil has better viscosity in cool weather.
Competition between biodiesel and food oil users has caused European canola oil prices to leap to unprecedented premiums over other vegetable oils. But European canola seed prices, while stronger than in Canada, have not soared because there is more seed available than what crushers can process.
The result is strong profits for crushers.
The situation has created opportunities for the Canadian canola industry, but they are indirect.
Canadian seed cannot be exported to the European Union because of EU restrictions on GM plants. But GM vegetable oil destined for biodiesel is not restricted and Canadian crushers have made some sales to European buyers. Further oil exports are limited because Canadian crushers are already operating close to maximum capacity.
But Australia produces non-GM canola and Mielke expects it will ship about 200,000 tonnes of seed to the EU.
“You can profit indirectly from this development,” he said. “(Australia) has less to export to Pakistan, Japan, China, and Bangladesh – destinations that you are going to export more to.”
Mielke forecasts Canadian exports at five million tonnes, 500,000 more than Agriculture Canada’s forecast.
“I think they are pessimistic. They don’t see the responses in the world market that will cause traditional importing countries to increase imports of Canadian canola.”
He also noted that first time customer Dubai has bought 50,000 tonnes of Canadian canola to crush so it can sell the oil to the EU.
He also expects Canadian crushers to process 3.6 million tonnes, 300,000 more than the Agriculture Canada forecast. This would put ending stocks at about 2.4 million tonnes, not the three million forecast by Agriculture Canada.
“This is still a huge number, but not as burdensome as other figures circulating in the market.”
Mielke’s outlook would require a much stronger pace of exports in the second half of the year, one that at least one Canadian analyst thinks is unattainable.
“There are capacity limitations at the port. There are capacity limitations with rail cars,” said Nolita Clyde of Ag Commodity Research in Winnipeg.
Exports of five million tonnes might have been possible if a fast pace was set in early fall, which would have required lower prices.
“Prices never get cheap enough fast enough,” said Clyde.
“If we had current prices in November then maybe we could have sold more to China, but because it took so long, they are looking at their crop coming off in May and June, so as the year progresses, the opportunity to sell more into these markets becomes more limited.”
