Wednesday November 26, 2014

Canola part of larger oil complex

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Marlene Boersch, Partner Mercantile Consulting Venture spoke at Canola Days.

The 2013 canola crop is a massive one.

“We all know we had a big crop,” Marlene Boersch, Partner Mercantile Consulting Venture, told those attending Canola Day as part of the Grain Millers Harvest Showdown last week.

Boersch said the Canola Council had been predicting canola production in Canada would hit 15 million tonnes by 2015, but this years crop is now estimated at 16-16.4 MT “up 15-16 per cent from last year,” adding Stats Canada has pegged the average canola yield at 39.4 bushels per acre.

“The growth in production has been impressive,” she said. “It’s two-and-a-half times bigger in terms of production than 10-years ago.”

While production has increased sales have basically kept pace.

“We’ve also managed to market a lot more canola,” said Boersch, adding exports this year are expected to hit 8 MT.

In terms of exports Japan, Mexico and the United States are stable, reliable markets for Canadian exports, said Boersch, adding they will generally take 4.3 MT.

Domestically the Canadian canola crush has also grown, with a current capacity of 9 MT. Boersch said this year the crush in Canada is expected to reach a new record high of 7.2 MT, adding “that’s close to export performance … The domestic market is working very well for you … The crushing margin is quite good.”

With the 4.3 MT to regular markets, and 7.2 MT to the domestic crush, Boersch said there will be some 5 MT of canola still to market.

“The big swing factor is China because of economic growth and population growth,” she said. “… We have to be aggressive towards China.”

Boersch said in terms of trade with China Canada has an inherent advantage based on lower freight costs from the West Coast that from the American gulf.

Even with increased crush and exports Boersch said ending stocks will grow based on this year’s massive crop, growing from a 17 day supply last year, to 30-days, a “significant” but not disastrous increase.

“A record canola crop will not in itself collapse canola prices,” she said.

The situation becomes somewhat more significant when canola is factored in with other oil sources.

“World rapeseed is up seven per cent for 2013,” said Boersch, adding China leads the way with 14 MT of production, followed by India at seven.

Canola is impacted by soybean production though, said Boersch.

“Canola will march more, or less, in tandem with soybeans,” she said, adding soybeans make up some 85 per cent of oilseeds trade, with rapeseed 10 per cent of which canola is a fraction of that.

Canola is even less significant in terms of world vegetable oil where palm makes up 34.7 cent of the profile, and accounts for 63 of trade. Rapeseed is 14.8 per cent of production, and 5.7 per  cent of trade.

“Canola continues to be well-priced compared to soybeans,” said Boersch.

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