China drank in much of the excess canola prairie farmers produced last crop year, but analysts say it is too early to tell how thirsty it will be with the new crop.
Canola sellers are hoping production problems overseas will keep China in the canola market and nudge it away from its usual bottom feeder status.
“More than any of our other markets, it has wild swings,” said David Hickling, a vice-president for the Canola Council of Canada.
“Our big challenge is trying to turn them into a consistent market, which is why the meal value and the tariffs need to be fixed.”
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China buys no canola from Canada in some years, but in 2008-09 it bought almost 2.9 million tonnes – more than a million tonnes more than optimistic trade guesses.
China might make huge moves in and out of the canola market, but it is a more consistent buyer of soybeans. That’s because it charges a higher tariff on canola imports and its crushing industry often mixes canola meal with lower quality rapeseed meal, undermining its value compared to soybeans.
In years when China is a major consumer of Canada’s canola crop, there’s been a big crop in Canada, like last crop year and in 1999-2000.
A big Canadian crop is not expected this year, with production falling from about 12.6 million tonnes in 2008 to 9.54 million for 2009, according to a Statistics Canada estimate.
But China may still appear in the market, analysts say. Whether it buys canola directly or supports world vegetable oil prices by buying soybeans, China is becoming a major factor on the demand side.
Not only has China’s vegetable oil consumption increased greatly in recent years, but its domestic soybean production has failed to keep up and this year its production prospects are undermined by drought in the northeastern region.
Vegetative growth maps show that area to have very dry conditions, but Chinese media are making little mention of problems in that area, focusing instead on crop production problems in the south.
That makes analyst Joe Victor of Allendale Inc. suspicious.
“I really believe they are suppressing the information,” said Victor.
“I don’t know if China is trying to make sure that they don’t raise any fears, massive fears, by revealing the crop stress that’s in the northeast…. I think what they’re doing is suppressing any fears because they don’t want farmers to hoard….
“Later, after the harvest, they might admit they have much larger problems.”
U.S. new crop soybean sales to China are booming, with more than eight million tonnes already booked. That is up 50 percent from last year at this time. It is also above U.S. Department of Agriculture earlier estimates and trade estimates.
That helped lift Chicago soybean futures prices last week, which in turn supported Winnipeg canola futures.
Analysts believe a variety of factors are behind China’s heavy importing of foreign oilseeds and forward contracting. Those include relatively cheap soybean prices, weather concerns within China, the possibility of frost in the United States and possible production problems in South America, which seeds its next soybean crop within weeks.
Argentina is still in the grip of a major drought. The country is also suffering from political and economic instability, including huge export tariffs on crops that may discourage planting and exports.
Hickling said the boom in canola sales to China in the crop year that ended July 31 surprised the Canadian canola industry, but part of it was due to a Chinese government decision to include canola in its strategic reserve of vegetable oil.
“With canola being in there, they had to build up their reserves,” said Hickling.
Once those reserves are full, that factor will fade from demand. However, Hickling said the long-term trend is good for canola exports because China will continue to need more foodstuffs for its people.
“They are not making a lot of progress in terms of self sufficiency,” said Hickling.
Oilseed deficit
While China is close to self sufficient in cereal grains, it must import increasing amounts of oilseeds to meet demand.
Victor said China’s government seems to have accepted that foreign oilseeds will play an increasing role in its consumption.
The China National Cereals, Oils and Foodstuffs Corp. recently announced plans to build its second-largest soybean crusher in the country’s southwest.
“They’re building it nowhere near where their soybeans grow, but it is very near import facilities,” said Victor.
“China keeps buying from us, which we feel is very healthy for oilseed supplies in North America.”
