HALIFAX – After hearing a bullish forecast for the long-term future of canola markets, one Saskatchewan farmer wryly laughed.
“Looking at the price today you wouldn’t believe it,” he said, after hearing Carl Hausmann, president and chief executive officer of Bunge North America, address the Canola Council of Canada’s annual convention.
Bunge is the world’s largest oilseed crusher.
Hausmann said his apparently radical view of canola markets was based on real data and involved no leaps of faith. North American vegetable oil markets are already short of supply and the deficit will grow over the next five years, leading to better long-term prices for canola.
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“The statistics show that we are an oil deficit market,” Hausmann said in an interview.
People are surprised by his conclusions because they have grown accustomed to viewing North America as the world’s leading producer and exporter of vegetable oil and oilseeds. That is no longer a valid view.
“It is a way of looking at these numbers that they are not used to.”
Palm oil imports
In Hausmann’s view, North American vegetable oil consumption will continue to grow at a faster pace than production, probably leading by 2010 to the almost unknown phenomenon of North American food processors importing Asian palm oil to close the gap.
However, that won’t mean canola prices will be based on Malaysian palm oil prices because canola has already earned itself a premium to soybeans.
As North America moves into a net deficit oilseed position, soybeans will probably become relatively more valuable than they are today, canola will still extract its premium above soybeans and palm oil will flow into the bottom of the market for processors who need stable but non-hydrogenated oil.
Hausmann said the oil deficit means North American canola growers and industry players will need to pay more attention to the domestic market than lower-value foreign potential buyers.
“We need to pay more attention to what the North American consumer wants,” Hausmann said.
“We are not a major exporter any more. We need to think about what our local customers are looking for …. The U.S. market is still a profitable market. Our consumer can afford to and is willing to pay for specialty oils, and so we should be looking for most of our signals to the North American consumer, not to the Chinese oil demand going forward.”
Hausmann said farmers might not feel good about oilseed prices today, but in U.S. dollar terms they are considerably better than five years ago, when soy oil was 15 cents US per pound on the Chicago futures market. It is now about 24 cents per pound.
And in five years, if new varieties of canola can continue to be developed and the oil deficit grows, he said the situation should improve further for the smart or lucky producer.
“I think the market will be very good five years from now, but I think the market will be very complicated five years from now, because we will see ever (increasing) demands for specialty canola to be grown.”
Farmers need to think about the implications of growing specialty crops. Profitability will be good for producers and processors who get the implications right.
“For the producer and the company like ourselves who don’t get the implications right, profitability won’t be as good.”
