Canada’s canola industry has spent years courting new markets like Mexico to buy this countries’ expanding supply.
But after winning a place in those hearts, Canadian canola might be forced to snub those newly interested markets this year.
The short crop means there isn’t enough canola for everyone and some of Canada’s smaller buyers may get cut off the dance card.
“Obviously we’re not going to be able to service markets the way we have for the past three years,” said Dale Adolphe, president of the Canola Council of Canada.
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“Things are up in the air.”
Canada produced about 4.79 million tonnes of canola this year, compared to 7.12 million tonnes last year.
Domestic canola crushers have proven more aggressive than foreign buyers in securing seed supplies, so the biggest drop in canola sales will probably occur in export seed sales.
Adolphe said that will mean some poorer buyers will be pushed out of the market.
Just four countries buy most of Canada’s export canola. For the first time last year, China was the biggest buyer, taking 1.89 million tonnes to Japan’s 1.87 million. Mexican demand soared almost 50 percent over the year before to 846,000 tonnes, while the United States bought 158,000 tonnes.
Japan, which demands high quality products and is able to absorb higher prices, will probably still be a major buyer this year.
But Mexico, which cares less about quality and more about price, will probably cut its imports from Canada, Adolphe said.
Some of the Mexican demand, which has been built through steady lobbying by Canadian marketers, will probably be filled by other oilseeds, Adolphe said. Since the spread between canola and alternatives such as soybeans has widened, some price-sensitive Mexican buyers will probably switch commodities.
But Adolphe said canola will probably keep some of the Mexican demand it has earned.
“There is consumer preference building in Mexico,” he said. If some consumers demand canola above other oils, buyers will be able to pass on some of the premium they would have to pay for seed this year.
However, some of that canola demand will probably be met by American supplies. U.S. growers produced a record one million tonnes of canola this summer – production promoted by American subsidy payments.
“I think we will see some U.S. canola going to Mexico, more than we have in the past,” said Adolphe.
“It’ll end up in Mexico at our expense.”
But while canola supplies are short this year, there has been no rush to buy, said Peter Lloyd of Xcan Grain.
China hasn’t stepped into the market yet and as long as it doesn’t, buyers don’t seem worried about supply.
“Taking a big chunk of demand out of the marketplace really has meant that we haven’t seen much impact on export availability so far this year,” said Lloyd.
“We haven’t seen tightness, despite the fact that their crop’s smaller.”
That would change if China moved back into the market and bought amounts similar to those of the past two years, Lloyd said.
If Chinese demand remains small, Canada may be able to satisfy both it and Mexico, said Adolphe.
“We may be able to supply China with everything they demand from us, and may have the supply to service Mexico at levels that we and Mexico want,” said Adolphe.
Turning away buyers doesn’t help build markets, Adolphe acknowledged. But he said Canada probably won’t lose those markets.
“I don’t know that we’ve ever lost a market because of our inability in one year to supply them.
“There’s very little positive about the whole thing, but I think one can be optimistic that it’s not a long-term economic situation.”
Canada’s reputation will be the main victim of this year’s short crop, Adolphe thinks. The Mexicans and other buyers will come back in future years, but other prospective customers who have never bought canola may never come to the dance. They want assurances that if they leave other oil supplies, they won’t be left in the lurch.
“When we prove to be an unreliable supplier to some customers, it is more difficult to get new customers,” said Adolphe.
