If there is any downside to the 44 percent year-over-year increase in Canadian canola prices it can be found in the sales ledger.
“Seed exports may be a challenge over the next few years because of high prices,” JoAnne Buth, president of the Canola Council of Canada, told growers attending Crop Production Week.
In an upscale market like Japan buyers are not happy but they continue importing.
But price-sensitive markets like China, Pakistan and to a lesser extent Mexico are buying less or looking for cheaper alternatives.
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To date, the buying behaviour described by Buth hasn’t materialized in export statistics. According to the Canadian Grain Commission, seed sales are only slightly off last year’s pace. As of Jan. 6, 2.3 million tonnes of the crop had been shipped compared to 2.4 million tonnes a year ago.
Oil World predicts 5.86 million tonnes of exports for 2007-08, up from 5.48 million the previous year. But other analysts are far less optimistic .
Agriculture Canada forecasts 5.3 million tonnes of exports. Buth said traders she has spoken with are estimating an even five million tonnes.
Larry Weber, analyst with Weber Commodities, thinks it will be closer to 4.5 million tonnes, down a whopping one million tonnes from the 2006-07 shipping season.
“Exports are our weak link,” he said.
Canada’s transportation woes are disrupting shipments, said Weber, noting that spot sales are 35 to 40 days out because shippers can’t get rail cars.
Ocean freight rates that are three times what they were a year ago are adding to the price shock Buth described.
Tariffs are another issue confronting exporters. Buth is particularly worried about the Chinese market. When the country was accepted into the World Trade Organization it set its tariff on canola at nine percent, while soybeans faced a three percent penalty.
The canola industry has worked on reducing that six percent differential but last year China dropped the tariff on soybeans to one percent because it needed more meal for its growing livestock industry, widening the tariff gap to eight percent, stopping Chinese canola buying. The industry can’t even get the ear of Chinese regulators to make its case.
“Dealing with the Chinese government is extremely difficult and complicated and we’re small compared to U.S., Brazil and Argentine soy,” said Buth.
What the industry has lost in China may be gained back in Europe. Buth expects European regulators to grant the final genetically modified canola approval in 2008, opening up that long lost market to seed exports.
Buth told growers the industry has set a goal of increasing global exports to 7.5 million tonnes by 2015, up from 5.2 million tonnes in 2006.
In order to increase demand for the crop, the industry hopes to raise the oil content of the seed through breeding and agronomics to an average of 45 percent from 42.5 percent in 2006.
The U.S. soybean industry is pouring some of its vast resources into increasing the oil content of its crop, which would reduce canola’s advantage in oil-driven markets.
“Increasing oil content is very important to us,” said Buth.
