This is the year that a lot of the canola industry’s chickens came home to roost.
They’re creating a big mess in the market, where canola prices have fallen below the financially and psychologically important $250 per tonne level in the November futures contract.
“It’s a pretty ugly situation,” said Bruce Dalgarno, a Newdale, Man.,
producer.
“It’s bad, however you look at it.”
Oilseed prices around the world are weak, but canola is in a particularly poor situation, falling further than soybeans and some other crops. Canadian canola is weaker than European rapeseed, where demand is stronger.
Read Also
USDA’s August corn yield estimates are bearish
The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
Canola’s problems this year come from both the supply and demand sides: too much of the first, too little of the second.
The mathematics of the supply problem are easy. Hybrid varieties plus adequate rainfall equals too much canola. The Canadian canola industry is now the victim of its own success in increasing yields.
For three years in a row canola production was held back by drought and frost, disguising the potential of the hybrid canola varieties that are steadily taking over the Prairies’ acreage. When enough rain and frost-free days occurred this summer, that potential was unleashed in a crop that could reach nine or 10 million tonnes.
“We’re just at the start of a very, very significant yield increase,” said Canola Council of Canada president Barb Isman. “I’ve been told to look at what happened in the corn industry in the United States when hybrids were introduced. The comparable situation could occur for canola.”
Corn yields increased greatly with hybrid varieties. With fair canola growing weather in large parts of the Prairies this year, modern varieties of canola are showing what they can do in yield.
A few years ago the industry set a target of “Seven by Seven,” meaning it wanted the Prairies to consistently produce seven million tonnes per year by 2007. This year’s experience, with reasonable but not exceptional weather, is expected to substantially exceed that target. The industry now needs to expand markets to soak up the flood.
“I’d forgotten what rain could do for a canola crop,” ruefully joked Isman.
But the marketplace is discriminating against canola.
In many developing countries, such as China, canola seed imports are charged a much higher tariff than soybean imports, often cutting Canadian canola out of those markets. Chinese soybean buyers pay a three percent import tariff, while canola buyers pay a nine percent tariff. Isman said the difference works out to about $20 per tonne. Traders say China would probably start buying canola if it was about $16 per tonne cheaper.
“That tariff is enough to make that market difficult for us,” said Isman.
“You can see why we care passionately about trade barriers.”
The canola industry and the federal government have been lobbying authorities in China, India and Pakistan to get equal tariff treatment for canola, but progress is slow. Major players like the U.S. are able to get bilateral deals much faster than small players like Canada, and the same applies to heavyweight soybeans versus featherweight canola, canola exporters say.
Isman said there is no quick solution to the oversupply problem. But a multipronged approach will work over the long term.
Increasing the market for high oleic canola will expand the overall consumption of canola, she thinks. Creating a biodiesel industry will soak up some excess production. And hammering away at discriminatory tariffs will work eventually.
“I’m optimistic we can do all of this.”
