A disappointing Canadian canola crop is setting up a tug of war between domestic crushers and exporters over supplies, with global vegetable oil markets already stretched tight by a drought-damaged U.S. soybean crop.
Canadian farmers were expected to shatter the record for canola production and harvest 15.4 million tonnes of the oilseed in 2012-13, according to Statistics Canada’s estimate last month.
But a midsummer heat wave, disease and a recent windstorm that flung around entire rows of cut canola have chopped industry yield and harvest estimates dramatically.
The crop may still be bigger than last year’s record 14.5 million tonnes, but crushers and exporters expected more, after both groups set records in 2011-12.
“I think exports are going to suffer,” said Don Roberts, analyst at CanolaInsight.com.
Canada is the world’s biggest producer and exporter of canola and its shipments make up some two-thirds of the global trade.
Selling canola’s processed products — oil to make vegetable oil or biodiesel and meal to feed livestock — is more lucrative than canola seed itself, and some crushers like Cargill Ltd. and Viterra Inc. are also seed exporters.
Cargill has just announced plans to build a new 850,000-tonne crushing plant near Camrose, Alta. The new facility is expected to be operating in time for the 2014-15 harvest.
Other Canadian crushers include Bunge Ltd., Archer Daniels Midland Co., Richardson International Ltd. and Louis Dreyfus Corp.
Crushers will be keen to sell canola oil to U.S. biodiesel makers because the competition, soybean oil, is in tight supply after the U.S. drought, Roberts said.
The U.S. Environmental Protection Agency this month boosted its mandate for biofuel production in 2013 to 1.28 billion gallons, up from this year’s one billion gallons.
Roberts sees Canadian canola seed shipments dropping off to China, last year’s top export market, and the United Arab Emirates. China may import more canola oil instead, he said.
Japan and Mexico, usually among Canada’s top three export markets, are steady canola buyers.
Canadian crushers have expanded rapidly in the past several years to keep pace with rising canola production. Canada crushed about seven million tonnes of canola in 2011-12.
Lach Coburn, West Coast manager for Cargill Ltd., sees a strong fall canola export season getting underway, and expects domestic crushing also to remain brisk.
The market has long-standing commitments to service in addition to new business currently on the books, he said.