Toilet paper. Dairy products. Flour. In the early days of the pandemic, everyday staples became near-luxury items as signs went up limiting purchases to one or two per customer.
Now, thanks to another global crisis disrupting supply chains, vegetable oil is getting the same treatment in some parts of the world.
“There’s already a strong demand for vegetable oils generally, and any impact on the availability of oils on the global market is only going to add pressure to that shortage,” said Jim Everson, president of the Canola Council of Canada.
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“The world economy is growing after the pandemic, and as those economies grow, the demand for products increases. It’s not just the current circumstances — it’s a longer-term trend.”
Russia’s invasion of Ukraine halted sunflower oil exports from both countries. Together they account for roughly 60 per cent of global sunflower oil production. And Ukraine produces most of the sunflower oil used in the United Kingdom — where major retailers such as Tesco and Waitrose are limiting shoppers to two or three bottles.
And supplies tightened further in late April — when faced with high prices and dwindling supplies, Indonesia (the world’s largest palm oil exporter) put a ban on veg oil exports.
“Palm is the most voluminous oil traded in the world, so when the growth of that sector slows down, the demand for other vegetable oils increases,” said Everson, adding that was already happening prior to the war in Ukraine.
And, of course, Canada has less canola oil to sell — last year’s crop hit a 14-year low at just over 12.5 million tonnes (versus 19.5 million tonnes in 2020).
“Canadian canola is responsible for 65 to 70 per cent of the world trade of canola or rapeseed, so when we have a really bad crop, that impacts the market,” he said. “Canola prices are high because of the shortage, and because of the challenges there, that’s unlikely to be a short-term thing. The fundamentals behind the supply-and-demand situation are in support of that.”
And that could be good news for Canadian canola growers.
“Canola oil doesn’t really compete against palm or sunflower oil because of the freight, but if the Ukrainian sunflower oil doesn’t come through, then they’ll start looking here to meet their demand,” said Ward Toma, general manager of Alberta Canola. “The longer this carries on, the greater the chance that it’s really going to boost prices.”
Rationing demand
“The country that would probably be impacted the most by both of these events is India. They’re a huge, huge importer of low-cost vegetable oils from that part of the world,” said Toma.
“If you take that away from them, they’re going to have to start buying up more expensive oils in the short term — soybeans or canola from North America. So short term, there might be a little boost to canola markets as people panic a bit and start looking for alternatives.”
But that will just encourage some countries to increase veg oil production, he said.
“India has made a long-term pledge to increase palm oil production in their country. So that might actually limit the scope of future demand that we might get out of that marketplace.”
So any boost to prices will be short lived — or might not happen at all, Toma predicted.
“If we have extra demand coming outside of the normal, it might be just too expensive for that demand to get filled. That’s what high prices do — they ration demand.”
Moreover, big increases in the price of fertilizer, fuel and other inputs mean margins haven’t increased despite record-high canola prices, he said.
Last year’s drought has also reduced expected canola acres for this year, with StatCan’s late-April forecast predicting a seven per cent drop this year.
“It’s still very dry throughout large chunks of the canola-growing regions of the Prairies,” said Toma. ““And when you’re putting canola in, that’s a lot of money… and if the risk of not getting a crop increases because they have no water, they might not want to take on that risk.”
If StatCan’s survey proves accurate, it will be even more important that this year’s crop is “normal or better than normal,” said Everson.
“We’re hoping… that we don’t have a repeat of the heat dome we had last year and that we don’t have another short crop,” he said. “We hope to get back to those normal circumstances, and when we do, the world is really going to be looking for Canadian canola because of the high demand that’s out there.
“I think the signal to growers is a good one for canola, so we’re optimistic about acreage this year.”
Supply chain disruptions
“As we get ready for our crop in 2023, there’s already issues around container access and fertilizer access and pricing,” he said. “We always seem to have challenges with rail service, and with the economy growing, there’s going to be other commodities using the Canadian rail service this fall.
“We’re going to need to make sure we have really excellent logistics for our rail service this year.”
Equally important is ensuring farmers can access inputs in the fall and next spring for next year’s crop, especially with recent government discussions about reducing greenhouse gas emissions from nitrogen fertilizer, he added.
“We need to be sure that as an industry, farmers continue to have access to the inputs that they require to grow our product,” said Everson. “Nitrogen fertilizer is critical to canola, so we have to be sure that our efforts to reduce the emissions that come from liquid nitrogen use do not mean that farmers cannot have access to nitrogen.”
In the meantime, canola producers should keep an eye on the markets to take advantage of any pricing opportunities that crop up.
“I think there will be some short-term shocks to the marketplace,” said Toma. “On the face of it, from a market standpoint, it looks like there’s going to be an opportunity — and the opportunity does exist if farmers can capitalize on it.”
