Global need for Canadian canola on rise

Manitoba Ag Days | Bullish canola market expected from falling U.S., South America soybean production

BRANDON — Thomas Mielke painted a picture of falling foreign canola production, falling world soybean production, falling world oilseed production, and made a simple comment: “This is quite bullish.”

That summed up his outlook for 2012-13 canola prices based on supply and demand fundamentals.

But that outlook doesn’t apply to flax exports from Canada, which he thinks are unlikely to recover from massive acreages seeded in Eastern Europe in recent years.

“Contrary to canola, the demand prospects for Canadian flaxseed, I’m sorry to say, are not encouraging,” said Mielke, who spoke at a Manitoba Ag Days session.

“I’m not very optimistic for the flaxseed outlook for 2012-13.”

Fortunately for most prairie farmers, if Mielke is right, canola is far more important in terms of acreage and revenue, while flax has dropped to the status of a special crop.

Mielke’s bullish outlook for Canadian canola comes out of his generally bullish outlook for oilseeds, with falling soybean production in both the U.S. and South America combining with weakening Asian palm oil production to create a world with growing demand but less oilseeds to buy.

“The net result of the outlook for 2012-13 is that the global market will become more dependent on Canadian canola,” said Mielke, by live videofeed from Germany.

“We need at least 14.5, probably 15 million tonnes of Canadian canola in 2012. Prices have to stay attractive in the next two to three months to convince you in Canada to expand your canola area again this spring.”

Mielke said Chinese soybean demand is not abating and will increase in coming years, while world production has fallen 13 million tonnes this year.

Increased sunflower oil and palm oil production in the past year only filled half that amount.

“That is a big change,” said Mielke.

Carry-in stocks of soybeans will drop this year, while production in South America looks poor compared to recent years.

Because of that he thinks the soybean-canola selloff that occurred after the delivery of the January U.S. Department of Agriculture supply and demand reports was premature.

“We think the real situation, the real production outlook in South America, is considerably tighter than the USDA reported last week,” he said.

Also, Asian palm oil yields are declining this year.

Canola has strong demand and will have trouble keeping up, Mielke said.

But the situation is more bearish for small acreage crops, which can get swamped by bigger swings in acreage.

Sunflower acreage and production increased in Eastern Europe last year, and prices have been hit.

“Even today sunflower oil, normally a premium product, is being marketed at discounts relative to canola oil, rapeseed oil and relative to soybean oil,” said Mielke.

“There is supply pressure.”

Flax demand from Western Europe has been swallowed up by flax growers in Russia and Kazakhstan, who find a spring flax works better for them than a winter canola crop, and they are likely to keep growing flax because they’re making good money at it.

“They actually benefit from the quality problems Canadian flaxseed (has had with Triffid), from the European point of view,” said Mielke.

“They have been benefiting from this window of opportunity and they are supplying most of the European demand.”

He expects a maximum of 300,000 tonnes of Canadian flax exports in 2012-13.

Because of the tightening soybean supply, Mielke predicts a vigorous battle for acres this year.

“There will be an increased fight for acres between oilseeds and grains in the northern hemisphere in 2012.”

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