When filling up their seeders this spring, Canadian farmers should have canola and soybeans coming down the spout, but not sunflowers and flax.
That was the advice from Thomas Mielke, executive director of Oil World, a global edible oil market research firm based in Germany.
“Unlike 2008, the price decline has been moderate, and there are reasons for it,” said Mielke, speaking via video link from his office in Hamburg.
Prices have retraced last year’s peaks, but the downtrend has been limited due to shrinking supplies worldwide and firm demand from the food, biofuel, and oleo-chemical industries.
Over the past decade, there has been “tremendous” growth of six million tonnes per year in global consumption of oils and fats, mainly palm oil, but also canola and rapeseed oil. Mielke predicted that in 2012, for the first time ever, there will be tightness in soybean oil markets where, a production decline expected in both the United States and South America could reduce market supply by as much as 13 million tonnes.
Palm oil, the world market leader, saw a four-million-tonne jump in production in 2011 due to good crops in Malaysia, Indonesia, and Colombia. But due to the nature of the plant, yields are expected to dip in 2012.
Canola has lately been trading in a band between $550 and $525 per tonne, with firm support at $500. World production of rapeseed and canola has flattened after years of dramatic increases, he added. Canada, which has seen a 50 per cent rise in exports over the past four years, is expected to export eight million tonnes, crush 6.88 million tonnes, and see end stocks of 1.12 million tonnes.
“This is an interesting trend: record production and demand even exceeding production of Canadian canola,” said Mielke, adding he expects the country’s global market share, already at 68 per cent, will continue to rise.
Poor winter rapeseed conditions in Europe and Ukraine will make the world even more dependent on Canadian canola exports in 2012-13, he said.
“We need at least 14.5 million tonnes, probably 15 million tonnes, of Canadian canola in 2012,” said Mielke. “So, prices have to stay attractive to convince you in Canada to expand canola area again this spring.”
Mielke is bearish on sunflower seed demand due to soaring production in the EU, Russia and Ukraine which saw an increase to 38.5 million tonnes from 33.5 million tonnes last year.
“There has been massive supply and price pressure during the past few weeks and months,” he said.
Demand prospects for flaxseed are “not encouraging” for Canadian farmers, he added.
After the Triffid debacle, exporters from countries of the former Soviet Union have stepped in to fill the gap. Next year, shipments from those countries to the EU are expected to rise to 380,000 tonnes from “nil” 10 years ago.
“We may see further expansion. They have benefited from the quality problems of Canadian flaxseed from the European point of view,” said Mielke, adding that this trend is “dangerous” to future prospects for Canadian farmers.
The “volume problem” in oilseed markets due to limitations in land and water could end up having a major downside, he added.