Canada’s drought forces canola importers to turn elsewhere

'Importers...are going to be left out in the cold'

File photo of a canola crop south of Ethelton, Sask. in 2019. (Dave Bedard photo)

Winnipeg | Reuters — Canada’s smallest canola harvest in 13 years, resulting from severe drought, is forcing importers like Japan and Mexico to pay more or scour other countries for the yellow-flowering oilseed.

With the scant available Canadian canola fetching high prices, customers of the world’s biggest canola exporter are leaning more heavily on smaller-producing countries or alternative vegetable oils such as palm and soybean oil, adding to global food inflation.

Labour shortages and pests are also eating into those oil supplies.

Both export markets and Canadian crushers, who process canola into oil for food or fuel, and meal for animal feed, are coming up far short of normal supplies.

Canada exported 388,000 tonnes of canola from Aug. 1 through the first seven weeks of the new crop year, down 71 per cent year over year, according to the Canadian Grain Commission.

With little to sell, exporters are mainly executing sales that they struck before drought damage drove up prices, with Canadian crushers buying nearly all available supplies, an exporter said.

“The entire market is still in a bit of shock,” he said.

In virtually all of the countries to which Canada normally exports canola, crushing the seed loses money, due to canola’s high price, he said.

Most-active ICE canola futures trade around $900 per tonne, up more than 70 per cent year over year.

Through the crop year ending July 31, 2022, Canadian canola exports are likely to fall 38 per cent to 6.5 million tonnes, while crushing volumes tumble to 7.5 million tonnes from last year’s record 10.4 million, according to Agriculture and Agri-Food Canada.

Canadian crushers, who include Bunge and Archer Daniels Midland, processed 661,968 tonnes of canola in August, the smallest monthly volume in 2-1/2 years.

Australia and Ukraine, which have bigger harvests this year, stand to benefit from Canada’s crop disaster, picking up new sales, said Stephen Nicholson, senior analyst of grains and oilseeds for investment bank Rabobank.

Those countries typically export far less than Canada’s volumes, however, Nicholson said.

“It’s not like there’s this big reservoir of canola out there looking for a home,” he said. “The importers are the ones that are going to be left out in the cold.”

Canada’s biggest export markets are usually China, Japan, Mexico and the United Arab Emirates.

China is buying only limited volumes of Canadian canola due to low supplies and current high prices, opting instead for canola oil from Russia and Ukraine, according to a China-based trader.

China has for two years barred canola imports from Canadian exporters Richardson International and Viterra, due to strained relations with Canada. If canola shipments from Canada drop further due to drought, Chinese buyers can turn to alternative animal feeds from soymeal and sunflower meal, and other edible oils as alternatives, industry sources said.

Bids for Ukrainian rapeseed, a cousin of canola, have risen over the past week, as the number of offers from suppliers shrinks due to declining stocks, APK-Inform consultancy said.

— Reporting for Reuters by Rod Nickel in Winnipeg; additional reporting by Hallie Gu in Beijing and Pavel Polityuk in Kiev.

ice november canola
By Terryn Shiells and Jade Markus, Commodity News Service Canada Winnipeg, July 31 – Canola contracts on the ICE Futures Canada trading platform ended higher on Friday, breaking above the key C$500 per tonne level after staging a late day rally. Traders were covering shorts ahead of the long weekend as Canadian markets will be closed on Monday, August 3, while US markets will be open, analysts said. The softer tone in the Canadian dollar was also underpinning values, as it made canola more attractive to crushers and exporters. There are some parts of Manitoba and Saskatchewan that have received too much rain this week, which was also supportive, as it could lower yield potential. However, weakness in the Chicago soy complex weighed on the market, as did improving weather conditions for US soybeans and Canadian canola in some regions. About 16,477 contracts traded on Friday, which compares with Thursday when 13,760 contracts changed hands. Spreading accounted for 7,792 of the trades. Milling wheat, barley and durum futures were untraded. Though, the Exchange moved wheat prices lower after Friday’s close. SOYBEAN futures at the Chicago Board of Trade closed five to 11 cents per bushel weaker on Friday amid a cancelled export order. The US Department of Agriculture said Friday morning that China had cancelled an order for 200,000 tonnes of US soybeans, which is bearish. However, a lack of crop improvement in the eastern United States could support prices in weeks to come. SOYOIL prices settled weaker on Friday following soybean futures. SOYMEAL closed lower Friday following nearby markets. CORN futures closed two to four cents per bushel weaker Friday amid market talk that heavy rain in June and July did not affect crops in the US Corn Belt as much as anticipated. A crop tour moving through Illinois has reported that corn crops are in good condition and damage is minor for the most part, which is bearish. A positive forecast for corn growing areas, with mild precipitation added to the bearish tone. WHEAT futures in Chicago closed two cents per bushel higher to two cents per bushel lower on Friday. Nearby contracts were up as a weaker US dollar makes the commodity more appealing to foreign buyers, market watchers say. Wheat prices on Friday were supported by earlier losses, which made US crops affordable to importers, traders say. Wheat prices were also underpinned by a better than anticipated export report. Analysts had estimated wheat exports at about 450,000 tonnes, but they ended at 699,100 tonnes. However, good crop prospects for US spring wheat and a large global supply situation was bearish. • The Wheat Quality Council Tour broke a new yield record at 49.9 bushels per acre. • Ukraine is 78 per cent done its harvest, and has produced 27.284-million tonnes of grain so far. ICE Futures Canada settlement prices are in Canadian dollars per metric ton.

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