U.S. lapping up Canadian canola oil

Reuters / Canada’s canola crushers are processing the oilseed at a record-brisk pace, as demand for canola oil heats up among U.S. makers of biodiesel and food products like potato chips.

The United States has long been a key export market for canola, Canada’s second-biggest crop after spring wheat, but its appetite has spiked in the past year.

In September, the U.S. Environmental Protection Agency (EPA) approved use of Canadian crops in U.S. biofuels, allowing fuel makers to collect tax credits for using them.

The move had an almost immediate impact on Canadian canola oil shipments.

“The growth into the U.S. is strong, very strong,” said Pat Van Osch, vice-president of oilseed processing for Richardson International Limited.

Biodiesel-based demand for canola from the United States tends to be sporadic, depending on market conditions for fuel makers and how the price of canola oil compares with soyoil, Van Osch said.

The U.S. food market for canola oil has also been strong.

“We’ve taken market share there as well and we’ve been able to do that because canola oil has been trading close to or at parity with soybean oil,” Van Osch said.

Canadian canola processors have crushed nearly 4.6 million tonnes of seed in 2011-12, well ahead of last year’s pace, which ended with a record 6.3 million tonnes crushed, according to the Canadian Oilseed Processors Association.

Much of the oil crushers produced headed south, as Canada exported nearly 770,000 tonnes of canola oil to the United States from August through January of 2011-12, up by almost one-third over last year’s record-high exports.

The U.S. Congress has set a goal of blending 36 billion gallons of renewable fuel into transportation fuel by 2022.

A fraction of that total — one billion gallons this year — is set aside for biodiesel produced by biomass such as crops, said Alan Weber, an adviser to the Washington-based National Biodiesel Board.

Biodiesel is made from a variety of feed stocks including animal fats, recycled cooking grease and soybean oil.

Canola oil is unlikely to threaten soyoil’s nearly 50 per cent market share, but is poised to carve out a piece of the U.S. biodiesel market with the other feed stocks, Weber said.

Crushing canola produces oil, which is used mainly as vegetable oil in salad dressings, margarine and no-stick sprays, as well as meal, used to feed livestock.

Meal is less valuable than canola oil, but still an important part of profit margins for crushers. Canola meal demand is also higher, with U.S. imports from Canada jumping 80 per cent year over year, due to U.S. regulators lifting import restrictions on some Canadian plants over bacteria concerns.

In the past several years, Cargill Inc., Richardson and Louis Dreyfus have dramatically expanded crushing capacity in Western Canada to tap new demand.

Bunge Ltd. plans to expand processing sites in Manitoba and Alberta, while Archer Daniels Midland intends to expand a canola-processing plant and build a biodiesel facility at Lloydminster, Alberta.

Just south of Manitoba, Northstar Agri Industries is set to open a canola-crushing plant at Hallock, Minnesota this spring.

Glencore International PLC., the world’s biggest diversified commodities trader, will run a Manitoba crushing plant if it completes its takeover of Viterra later this year.

Canadian farmers look poised to boost supplies to match some of the lucrative new demand and are expected to plant a record-large canola acreage this spring.

Canola was a minor Canadian crop with limited markets when Brett Halstead began growing it in the late 1980s. Today, Canada is the world’s biggest exporter of the rapeseed variant, and its many domestic and export buyers make it the centrepiece of many farmers’ production.

“From a grower’s perspective, it’s just the economics of it, the price,” said Halstead, a farmer at Nokomis, Saskatchewan and board chair of the industry organization SaskCanola. “Producers see it year in and year out as the crop, or one of the crops that has the best returns.”

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