Global prices for edible oil and meal have “virtually exploded” in recent weeks — good news for Canadian canola growers hoping to tap into the European market.
“The average edible oil price, as well as the average oil meal price, are currently almost 40 per cent above the latest five-year average,” said Thomas Mielke, executive director of Hamburg-based market analyst firm Oil World. “Most oilseeds, oils, and meals have rallied to six-year highs recently.”
To understand what’s happening in canola, Canadian producers need to look at what’s happening with other edible oils and meals, Mielke said at the virtual Canola Week conference earlier this month. Canola and rapeseed account for about 11 per cent of global production of oils and fats, versus 32 per cent for palm oil and 25 per cent for soyoil.
“Prices of Canadian canola are largely determined by world market developments, primarily of palm and soyoil, and we’ve really seen an upswing in palm and in soyoil,” he said. “Within the past three months, the global soybean balance turned from surplus to tightness. Rapidly rising soybean and soyoil prices have pulled up canola prices in Canada and rapeseed prices in Europe.”
There are a few reasons for that.
First, world supplies for oilseeds and edible oils — especially soy — are tight. In the last two weeks of November, futures prices for soybeans and soy products saw new contract highs on the Chicago Board of Trade in response to “lower-than-expected supplies, record U.S. exports, and a prospective steep decline in U.S. soybean stocks at the end of this season.”
“U.S. soybean production has turned out lower than expected, and crop concerns in South America are adding to the bullishness,” said Mielke, adding South American exports saw a 13-million- to 14-million-tonne shortfall between September and December.
“The U.S. has to compensate for this. For the full season, we expect U.S. soybean exports to reach at least 60 million tonnes, but probably they will rise to 62 million or 63 million, which would draw down U.S. stocks to critically low levels.”
As well, the U.S. crop is 2.7 million tonnes smaller than expected, at 113.5 million tonnes this year, while South America’s crop was revised downward by four million tonnes as a result of drought.
“Rainfall in September, October, and November was sharply below normal — the worst drought in at least 30 years,” he said. “December rainfalls are crucial. If they are not widespread and at least close to normal, a crop failure in South America cannot be prevented. It’s a very critical situation.”
Even as supplies are tightening, demand for soyoil and meal is rising.
“Worldwide, there is an increasing dependence on soyoil and meal in the current season,” he said. “We estimate that the world consumption of soymeal will rise by 2.7 million tonnes compared with 1.8 million tonnes gross last season.”
World soybean crush is expected to increase by 13 million tonnes, creating a global deficit for the second consecutive year, he said.
“At the moment, we expect world stocks to decline by three million tonnes from a year earlier, to 93.9 million at the end of August,” said Mielke. “In case of additional South American crop losses, which have become more likely recently, the stocks would fall even further.”
Meanwhile, consumption is increasing in some key countries. After cutting back on oilseed crushing and oil meal consumption as a result of African swine fever, China’s consumption is “almost back on trend,” with the soybean crush approaching 28 million tonnes there this season. Oil meal consumption is also expected to rise by six million tonnes (seven per cent).
“Most of this increase will be satisfied by rising crushings of soybeans,” he said. “We expect oil meal imports to remain close to the record level of last season. Imports of rapeseed and canola meal together are probably 1.8 million tonnes to 1.9 million tonnes in the current season.”
The U.S. could see record exports and crush levels for this crop year, and as a result, stocks have fallen to a seven-year low.
“It is even possible that the stocks will be reduced even further to bare minimum levels of three million tonnes or less if soybean exports and crushings will be increased further in response to lower than currently expected South American production,” he said.
Filling the gap
And insufficient supplies of other types of edible oils and meals are pressuring soy supplies even further.
“Soymeal has to cover virtually all of the growth of oil meal requirements because production of all other oil meals combined will be virtually flat,” said Mielke. “The question is: Will soybean supplies be sufficient to allow a significant increase in soybean crushings in the next 12 months?”
Canola and rapeseed could fill the gap, depending on production levels. While global rapeseed and canola production has been on a “declining trend” for the past seven years, production started to recover this year.
“We expect world production in 2020-21 to rise by 2.4 million tonnes, with the biggest increases in India and Australia,” he said.
“In Australia, harvesting is still going on, with larger-than-expected yields so far. We expect the canola crop at 3.8 million tonnes, a four-year high. Exports are increasing to Europe mainly, but also to China and other countries.”
On the flip side, the European Union has seen lower production — “only 17 million tonnes for the second consecutive year, compared with interior requirements in the EU of 23 million to 24 million tonnes.”
“For the EU, import requirements are likely to rise to 6.3 million or 6.4 million tonnes. Most of that has to be imported from Ukraine, Canada and Australia,” he said. “Ukrainian export supplies are already largely shipped. The EU is now mainly dependent on Canada and Australia.”
At the moment, Canadian canola prices have “increased sharply,” making it less attractive for the EU market. But that could change as supplies tighten further.
“The surplus in Canadian canola stocks will be disposed in the current season, and Canadian stocks will be relatively small at the end of this season,” said Mielke.
“This should provide attractive selling opportunities for canola farmers.”