Canola remains the golden crop that keeps on giving

There are many factors at play, but the bottom line is prices are good and the outlook is, too

Canola has come through again.

Despite more lows than highs over the past year, prices are strong and could get better, market watchers say.

Bruce Burnett.
photo: Supplied

“We’re seeing better pricing opportunities right now for canola, and there’s a possibility that prices will move higher,” said Bruce Burnett, director of MarketsFarm (a division of Glacier FarmMedia, which owns the Alberta Farmer). “We’re going to see prices in a lot of areas of the Prairies above the $11-a-bushel mark. Given what we were looking at a year ago, that’s a very good price level.”

This is partly because China (despite being upset over the detention of Huawei executive Meng Wanzhou on a U.S. extradition warrant) is still buying, partly through what some are calling ‘backdoor’ imports of canola oil from the United Arab Emirates.

But that isn’t the full story, said Neil Townsend, chief market analyst for FarmLink Marketing Solutions.

“We’ve done very well in the last four months getting it through (China’s) front door,” he said. “We averaged over 265,000 tonnes per month for the last four months of the marketing year, and that’s really good.”

In China, canola oil is a premium product that food processors use as a ‘front-of-the-box claim’ of quality. As well, shoppers use it in when cooking at home, and so use has gone up since the pandemic hit, he said.

Neil Townsend.
photo: Supplied

“They’ve been getting their canola oil from a variety of different places, but that demand has been created over multiple years,” said Townsend. “Even with the restriction on Canadian canola entering the market, that demand didn’t fade away.”

The recently concluded crop year turned out “a little better” than expected for seed sales to China, even after Beijing shut its doors on Viterra and Richardson International (the biggest two sellers) in March 2019, he said.

“(It) wasn’t as bad as we thought it would be,” he said. “They’re probably down a little bit from their total use of Canadian canola, but not as much as you’d think with all the political noise.

“It certainly was an impediment, and we’d prefer it to go away, but we still managed to get canola in both through the front door and through the back door.”

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The outlook

Whether prices remain strong will depend, in part, on this year’s harvest. Agriculture and Agri-Food Canada estimates canola production will hit around 18.9 million tonnes, while FarmLink’s production estimate is closer to 20.2 million tonnes — about a 1.3 million tonne difference.

“That difference is absolutely critical,” said Townsend. “If we don’t get the yield and it’s closer to the AAFC number, that is very supportive of prices. Futures would go above $500 for more days, and we’d see some prices above $11.”

Still, demand is robust.

For example, the United Arab Emirates has upped its purchases of Canadian canola, said Brian Innes, vice-president of public affairs for the Canola Council of Canada.

“It’s important for growers to understand that we have always exported to the UAE — in fact, we’ve exported significant quantities to the UAE in the past,” said Innes. “It was only three years ago that we exported approximately 800,000 tonnes to the UAE. This year, we’re going to be a little bit more than that, but not substantially so.”

The reason for that is strictly economics, he added.

“The UAE has a modern, large crush plant similar to the modern, large crush plants we have in Canada, and when market conditions are right, it imports canola seed from Canada,” he said.

“It always has operated to source oilseeds from the most favourable origin and provide those products to the most favourable destination.”

China may be one of those destinations, but only because demand is strong, said Burnett.

“Whether that canola oil ultimately goes to China or to another country, we don’t really know,” he said. “But the UAE has upped its purchases this year of Canadian canola from the last few years, and that’s because it’s essentially looking at what commodity it can crush that gives it the best profit.”

Strong oilseed demand

There is “robust demand for oilseeds in general,” Burnett added.

“The global vegetable oilseed market is expected to tighten this year, specifically rapeseed and palm oil. That’s part of the reason we’re seeing more interest in canola,” he said.

Other countries have increased their purchases, which “helps make up for a lot of that shortfall in (Chinese) demand.”

“Other countries that last year were maybe not quite as aggressive buyers of canola have returned to Canadian canola this year,” he said. “Overall we’ve seen very strong demand for canola this crop year.”

The European Union in particular has upped its imports of Canadian canola seed for its growing biodiesel market as a result of a smaller-than-expected rapeseed crop.

“Our exports to Europe are on track to be approximately two million tonnes on a crop-year basis, which is up substantially compared to what they have been in the past,” said Innes.

But China’s demand for canola can’t be discounted, even if it has reduced seed imports, Townsend added.

“Whenever you impose import restrictions on a product that people actually use and you’re not self-sufficient on, you hurt yourself more than you hurt other people,” he said.

Take advantage

And that, more than anything, has kept prices stronger than expected for canola producers in recent months.

“Prices have rebounded from the low levels that they were at immediately following the blockage in 2019,” said Innes. “When the dominant purchaser isn’t purchasing or is purchasing at less than normal levels, the value of our product goes down. But there has been strength recently because producers have adapted and the market has adapted.”

Futures prices have “increased significantly” over the last month and could go even higher as harvest continues across the Prairies.

Producers should be taking advantage of those higher prices while they can, by selling at least some of their production into this run-up in prices, said Townsend.

“With COVID-19 and all the political craziness right now, volatility and uncertainty are maybe at the highest levels I’ve seen in my career in the business,” he said. “We’re trying to offset risk by advancing sales sooner than later to get to a better comfort level where we have less exposure to the market.

“For canola, we’ve sold 40 per cent of our expected supply already, and if we can do a deferred sale where we could get up to 60 per cent sold, to us, that’s money in the bank.”

There’s always the chance that prices could go higher, but “this is a multi-year thing,” he said, and producers will still be able to capitalize on it in the months ahead.

“If we get tighter stocks this year, the strength of the market will persist into the early stages of the next crop year — 2021-22 — and you’ll be able to sell at good values for expected production,” said Townsend.

“If you miss it a little bit because you sold some early to take risk off the table, you’ll make it up because you’ll make some good first sales for the next crop year.”

Burnett agrees.

“Once we’re through this year’s harvest, we’re probably going to see stronger canola prices as we move through the marketing year, mostly because of the very good demand for Canadian canola for the first half of this new crop year,” he said.

“That, I think, is going to be very positive as we move through harvest. Certainly it’s good news for farmers in Western Canada.”

About the author

Reporter

Jennifer Blair

Jennifer Blair is a Red Deer-based reporter with a post-secondary education in professional writing and nearly 10 years of experience in corporate communications, policy development, and journalism. She's spent half of her career telling stories about an industry she loves for an audience she admires--the farmers who work every day to build a better agriculture industry in Alberta.

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