CNS Canada — Canada’s canola exports will likely get dragged down by the sea of red ink flowing from Chinese markets, according to an analyst.
“It will slow the export market. The whole canola engine has shrunk a little bit. Production will be down about 15 per cent or thereabouts,” said Errol Anderson of ProMarket Communications in Calgary.
Aug. 24 has already been dubbed “Black Monday” by some Chinese market-watchers, due to the 8.5 per cent drop by the country’s main index. Its ripple effects have been felt around the globe as China is responsible for roughly 40 per cent of the world’s GDP.
Considering the amount of turbulence the situation in Greece caused, any further plummets in the Chinese stock market could have drastic consequences, Anderson said.
“The crushers here are going to be losing lots of money because the global vegetable oil market has really tanked,” he said, adding the canola market could “absolutely” go lower in the near future also.
Crushing plants did very well a year ago, Anderson said, but 2016 is shaping up much differently. He noted one particular plant in central Alberta has lots of capacity right now but “the more they buy the more they lose.”
As a result, he expected they, and other plants in the region, will show a lot of caution when forward-purchasing.
“The basis levels could be volatile because of that. I could see them putting on sales, filling on that sale and when the sale is covered, the basis will back right off. So it’s going to be an interesting year.”
Despite Statistics Canada’s recent projections calling for a lower canola crop than last year, Anderson said that will have little impact on the overall situation.
“It’s not about importing. So from our perspective the problem we have is not supply, it’s demand, which will rule the roost and determine where prices go. The Chinese buyer doesn’t care about the Canadian canola crop right now.”
Japan will also likely be accepting less canola along with several other countries, according to Anderson.
“When China devalued their currency they hurt all their trading partners around them, from Vietnam to Kazakhstan.”
— Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Follow CNS Canada at @CNSCanada on Twitter.