Canada’s canola crop appears to be getting bigger as demand is slumping, say two market analysts.
They take issue with CWB’s production estimate of 12.5 million tonnes, formulated after touring fields across Western Canada between July 21 and July 24.
“Our two bits is they’re a million tonnes short,” said Errol Anderson, analyst with ProMarket Wire.
“It will be something like 13.5 (million tonnes) in our view.”
Derek Squair, president of Agri-Trend Marketing, has been stuck on 13.5 million tonnes for a long time.
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“There was real pressure to take that number down and now there’s some real pressure to take the number up with everything that has happened in the last 21 days,” he said.
“We’re still sticking with that 13.5 and we have a hard time with the 12.5 number. I think that’s too low.”
Squair has contemplated in-creasing his canola production estimate but he is concerned about some of the reseeded acres. That crop is doing well but some is still in flower during a recent spell of cool, wet weather and that increases risk of frost damage.
Anderson said July rain dramatically improved crop prospects in Alberta, where canola had been suffering the most due to drought.
“A lot of canola crops in Alberta will be close to normal,” he said. “It’s amazing how it has fought its way back but it has.”
Analysts say the crop is getting larger at a time when demand is faltering. China is the top buyer of Canadian canola by a wide margin, accounting for 43 percent of exports through the first 10 months of the 2014-15 marketing campaign.
“We’re hearing that some of the (Chinese) crushers may be shut down temporarily,” said Anderson.
“I suspect it’s because of credit problems.”
Some analysts believe the Chinese economy is growing at four percent this year, well below the official government estimate of seven percent. That would mean lower consumption by the world’s largest consumer of commodities.
“It’s a really significant issue for Canadian grain prices,” said Anderson.
Squair has also heard the rumours about Chinese crush facilities closing but he thinks it has more to do with poor margins than a lack of credit.
Poor crush margins may have contributed to recent developments with two American facilities.
Legumex Walker’s Pacific Coast Canola plant in Washington State has defaulted on a loan payment to AgCountry Farm Credit Services.
“It’s a crusher that’s having a hard time making money because it’s out of the catchment area so freight is killing them,” said Squair.
CHS recently acquired the Northstar Agri Industries plant near the Manitoba border at Hallock, Minn., from PICO Northstar Hallock for US$127 million. The plant was completed in 2012 at a cost of $165 million.
Anderson said crush margins are being squeezed by the combination of falling vegetable oil prices and rising canola prices.
“This year is not one for the record books at all,” he said.
Squair said margins are much better in soybean crushing, which is stealing demand from canola.
That is a worrisome development especially when combined with the slowdown in the Chinese economy.
“That is absolutely a concern,” he said.
