Sale of stockpiled rapeseed oil could temporarily reduce demand for imported canola
The end of a major rapeseed subsidy program in China could have far-reaching effects on canola demand in one of Canada’s key markets, says an industry analyst.
China’s rapeseed oil reserve policy is being dismantled in 2015-16, according to a recent report by the International Grains Council.
The program has been buying rapeseed from Chinese farmers since 2009 at prices much higher than world values.
The rapeseed is crushed and the meal is sold immediately while the oil is placed into strategic reserves.
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The council estimates the Chinese government has stockpiled six million tonnes of rapeseed oil, which has become costly to maintain.
It expects the government to sell 600,000 tonnes of that oil into the marketplace in 2015-16, which could reduce the amount of canola purchased by the world’s largest importer of the product.
“Although the potential impact of the scheme’s termination is highly uncertain, it could lead to changes in domestic supply and demand, including a fall in imports,” said the council.
Glen Pownall, oilseed analyst with Peter Cremer Canada, said the sudden policy shift has created turmoil in China’s rapeseed market.
“The farmers planted the rapeseed with the expectation that the procurement policy would still be there, and then in the midst of harvest the central government pulled it,” he said.
Major producing areas, including the provinces of Anhui, Henan, Hubei, Hunan, Guizhou, Jiangsu and Sichuan, are developing their own subsidy programs to support farmers or processors. The expectation is the provincial programs will not be nearly as lucrative as the central government program.
Pownall said Chinese farmers may decide to sell into the commercial marketplace, which would put downward pressure on prices, or they may decide to horde their crops in protest.
One thing he is certain about is that the loss of the procurement program will deter Chinese growers from planting rapeseed this fall.
“We’re going to see a significant drop in seeded acres in China next year. I wouldn’t be surprised if you lose 35 percent of the acres,” he said.
That would bode well for Canadian canola exports if it were not for a drought that is sapping yields in Saskatchewan and Alberta.
“With how severe the production drop is looking in Canada right now, I don’t know that we really have a lot of excess supply to supply to China,” said Pownall.
China is already backing out of canola import contracts because of escalating prices.
He expects Canadian exporters will focus on markets with inelastic demand such as Japan, Mexico and the United States. Pownall expects Canadian production will be close to 13.7 million tonnes, down from last year’s 15.6 million tonnes and the 18 million tonnes produced in 2013-14. Other analysts are predicting an even smaller crop.
Rising Canadian canola prices will make it easier for the Chinese government to market its stockpile of rapeseed oil, which hasn’t been moving well in weekly auctions.
“There is not a lot of uptake on it, largely to do with quality concerns,” said Pownall. “You can only store oil for so long, and a lot of this oil has been in tanks for a long, long time.”
However, quality problems may become less of a concern as prices rise for imported canola.
“It could be a great opportunity for the (Chinese) government to get rid of it at some better prices because they’re already taking huge losses on it,” said Pownall.
