Increased North American ethanol production means one thing for canola: more competition for canola meal.
While the biofuel boom is great for canola because of the increased oil demand to make biodiesel, ethanol by itself is simply bad for canola prices.
“It’s going to have a depressing effect,” said meal market specialist Dave Hickling of the Canola Council of Canada about the coming surge of corn-based distillers grain.
The price of canola seed is linked to oil and meal, the two products of oilseed crushing.
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Without biodiesel production and increasing edible oil demand to raise the value of canola’s oil, canola prices would face a threat from the millions of tonnes of corn distiller’s grain pouring into the feed market.
“It would be a totally negative effect,” said Hickling.
Drawing millions of tonnes of cereals, mainly corn but also wheat, out of the North American feed grain market to make fuel will support corn and wheat prices.
By turning cornstarch into ethanol, 40 percent of the grain is left over as distiller’s grain. That product, rather than having the nine percent protein of grain corn, has 27 percent protein.
That’s enough to make corn distiller’s grain into a protein supplement for livestock, shifting it to the other side of the energy-protein equation and putting it in direct competition with canola meal and soybean meal. Canola meal contains about 36 percent protein and soybean meal contains 47 percent.
Canola meal already sells at a discount to soybean meal – about $150 per tonne for canola meal versus $250 per tonne for soybean meal.
Corn distiller’s grain will likely steal part of canola’s best meal market.
Right now the dairy industry, especially in California, pays a premium for canola meal over other users. That’s because canola meal’s amino acid composition is ideal for milk production in cows.
But corn distiller’s grain also works well, and is likely to begin nibbling at that market.
At the same time, canola meal supplies are likely to build in North America as biodiesel production causes more of the canola crop to be crushed domestically rather than exported overseas as raw seed.
That will send canola meal sellers seeking new buyers, and they will probably be forced to sell more to the pig and poultry industries, which pay far less for it. So canola meal will be chasing lower value markets at the same time that corn distiller’s grain will be taking canola meal’s best market.
Overall, canola meal is likely to drop in price by 15 to 20 percent, Hickling said. That is the same amount that U.S. soybean experts expect soybean meal to drop.
“No matter what happens, there will be an increase in protein ingredients from distiller’s grain on the ethanol side and from the excess soybean meal from biodiesel production,” said Hickling.
Fortunately for canola, meal is far less important in the overall price than oil. That’s not true for its nearest oilseed competitor.
Canola gets about two-thirds of its value from its oil, and about one-third from its meal. Soybean gets about two-thirds of its value from its meal.
Canola researchers and developers are trying to boost the oil content of canola seed, because that’s where the most value is. But they’re also trying to boost the energy value of canola meal by reducing the fibre content of the seed.
While soybeans will probably be hit harder by the biofuel boom and corn will benefit most, Hickling said canola will probably be a significant overall beneficiary because it is much more oil-rich than soybeans.
Mitigating the negative effects of corn distiller’s grain will be important in keeping the biofuel boom a net positive for canola.
