China was a prolific buyer of Canadian canola during the first three months of 2011-12 and is about to develop an even bigger appetite, according to an industry official.
The grand opening of Viterra’s jointly owned 680,000 tonne crush plant in the southern Chinese province of Guangxi was set for Nov. 30.
“In its simplest form, it’s more opportunity for us to move seed into that marketplace. Obviously that’s a good thing,” said Cory McArthur, vice-president of market development with the Canola Council of Canada.
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The Viterra plant gives Canada a sixth approved delivery destination under China’s blackleg protocol. Those six plants can process 2.8 million tonnes of canola, which is the most Canada has ever shipped there.
McArthur said China can be a mysterious and sporadic buyer of Canadian canola. It will be nice to have a new crushing facility that can add transparency and predictability to the Chinese export program.
“Obviously, having somebody with the Canadian canola industry invested in a facility over there takes some of the guessing work out of it,” he said.
Chuck Penner, an analyst with Left-Field Commodity Research, doesn’t agree there will be an uptick in demand associated with Viterra’s grand opening because China already has plenty of crushing capacity.
“I don’t think there is a bottleneck there right now that needs to be relieved,” he said.
Penner also said Viterra could fuel its plant with Australian canola. Growers there are expected to harvest 2.6 million tonnes of canola, up from 2.2 million last year.
“That will be a bit of a competitor even in the next few months, so we might see (Canadian exports) slow down a bit,” he said.
If sales to China slow, it might not be a market mover because domestic and international demand have been high.
“The supplies are going to be getting a lot tighter and we’ve already seen the basis levels narrow in some places to par with futures,” said Penner.
“Based on how quickly we’re going through the pile of canola, there actually has to be more out there than what we’re reporting. Otherwise we’re going to basically run out before the end of the year.”
He suspects Statistics Canada will find another one million tonnes of the oilseed in the Dec. 6 production report. That could cause basis levels to widen slightly, but only if growers push more product on the market.
The extra supply could help feed a Chinese market that bought 534,200 tonnes of canola during the first three months of the 2011-12 marketing campaign, making it the second biggest buyer next to Japan, which has bought 556,800 tonnes.
Sales to China are up 127 percent over the first quarter of last year. In fact, Canada has already sold more than half of last year’s total shipments of 916,800 tonnes.
And it doesn’t look like there will be much of a reduction in sales for the rest of the year based on comments made by the China National Grain and Oils Information Centre, which expects 2011-12 (June/May) canola imports to hit 1.8 million tonnes, up 41 percent from the 1.277 million tonnes imported last year.
McArthur said that is simply a function of the rapidly expanding Chinese middle class.
“There is more people consuming vegetable oils and there is more people looking for healthier cooking oils,” he said.
COFCO Co. Ltd., the largest state-owned grain trader, recently built four rapeseed plants in China’s main growing areas to help meet that demand.
Canada’s canola exporters won’t be able to ship product to those plants because of China’s blackleg restrictions, but COFCO is also contemplating investing in a plant on the coast, which the Canola Council of Canada would push to have included on the list of approved crushers.
McArthur thinks India could someday rival China as a major buyer of Canadian canola. He travelled to India last week to talk to food manufacturers and oil importers about the virtues of canola oil.
It is only an oil market now, but it could become a big seed buyer once approvals are in place for Canada’s genetically modified varieties.
“One could argue that if we’re moving product into China, there is no reason we shouldn’t be moving production into India from a demographic standpoint,” he said.
“We just need to start creating a little bit of groundswell of demand and hopefully we’ll start to see the numbers go up.”
