SAN FRANCISCO, Calif. – David Jackson gave farmers a reason to be optimistic about canola prices for the future.
“The next two to three years will provide chances for oil prices to go high,” said Jackson, a food oils analyst with LMC International, during the Canola Council of Canada’s convention in San Francisco last week.
He then gave them a reason to be scared.
“There is a huge wave of palm that has been planted. It’s a tidal wave and it’s coming,” said Jackson.
Read Also
Sask. ag group wants strychnine back
The Agricultural Producers Association of Saskatchewan has written to the federal government asking for emergency use of strychnine to control gophers
Currently, there is a huge demand for canola from Europe because of biodiesel production and a large demand from China because of meal consumption for livestock feeding.
“In Europe, it’s all good news,” said Jackson, noting it creates a foundation for strong oilseed prices and a direct demand for canola seed. The European Unon buys little Canadian canola seed but a lot from Ukraine and Australia.
And China’s demand is strong, even if the blackleg blackout is barring access to the market for Canadian and Australian seed. Jackson said the ban is not likely permanent.
“It’s a temporary situation caused by a swing in Chinese government policy,” he said.
China’s government has been trying to keep Chinese farmers happy by buying their rapeseed at a high guaranteed price. But China’s crushers balked at the high price for the seed and were buying offshore canola from places like Canada.
That has caused domestic canola stocks to grow in China and the Chinese government to get frustrated. With the blackleg ban in place, the crushers have to buy domestic seed and the stockpile is falling. Once the stockpile is gone, market access should be easier, Jackson said.
The problem with palm oil won’t occur until 2012-13. The high vegetable oil prices that began in 2007-08 encouraged farmers in places like Indonesia to plant huge acreages to oil palms and the continued strong market since has kept the planting going.
That’s bad for the veg oil price outlook, because palm trees take five to eight years to develop, but then produce crops for 20 to 25 years. Once they start producing, there is never an incentive to scale back production because the planting cost has already been incurred.
Indonesia alone could produce an extra 30 million tonnes per year of oil.
“This will drive the market in the next decade and it’s already been planted,” said Jackson.
Garth Hodges of Bayer CropScience said he concurred with Jackson’s assessment of lower veg oil prices in the future. He said prairie canola growers will need to offset weaker prices by maximizing yields.
“I certainly believe the long-term trend in prices is going down,” said Hodges. “So a grower has to see how many bushels he can grow per acre. That’s the only way he will be able to compensate.”
