December 11, 2009

  

Competition for Canada's canola crop seen heating up

 

 

Competition for Canada's canola crop is expected to increase significantly between domestic processors and exporters in 2010, industry officials said.

 

"As more and more domestic processors come on line, the battle between the export and domestic sector is going to heat up and create good pricing opportunities for producers with canola," said Ron Frost, an analyst with the Frost Forecasting Corp. of Calgary.

 

He cited the two canola processing facilities, each with a capacity in excess of 800,000 tonnes of canola annually, recently built in the Yorkton, Saskatchewan, area as a prime example of the domestic sector starting to want more canola.

 

"We have already begun to create a negative canola supply zone in the Yorkton area," Frost said, noting that there is already talk about the pull of canola into the area.

 

Frost said he knows of contracts to sell canola in the Fort Saskatchewan area, which is northeast of Edmonton, Alberta, with that canola destined to be railed back roughly 483 miles to one of the crushers in the Yorkton, Saskatchewan, area.

 

Normally, that canola would make its way to the export market at the West Coast.

 

"This is a strong indication of just how aware the processors are of the need to be able to secure supply," he said adding that this is also an example as to how much the flow of canola is going to be changed from its traditional movement.

 

The eastern third of the Canadian prairies has traditionally supplied the movement of grains and oilseeds through Thunder Bay, Ontario, while the western two-thirds of the Canadian prairies has supplied the West Coast export programme, Frost said.

 

Frost pointed out that until canola acreage and production is guaranteed to be at a level that the Canadian canola industry can be comfortable with there will definitely be periods of time, which will result in higher cash bids for growers.

 

"It will really come down to who wants the canola more, the domestic processors or the exporters," Frost said.

 

China's recent ban on Canadian canola with the blackleg, a fungal disease, also shows how Canada's increased crush capacity helped to offset the move.

 

Frost indicated that because of the ban on Canadian canola seed, the bigger crush capacity of the domestic processors will result in more canola oil moving to China.

 

"I think we have an interesting next 12 to 18 months in the canola market in western Canada," Frost said, adding that there will be no problem in finding outlets for a Canadian canola crop in the area of 12.0 million tonnes when all of this has been sorted out.

 

"There is no doubt, going to be more competition between Canada's exporters and domestic crushers for available canola supplies, but one must also take into consideration that production is also on the rise," Jerry Klassen, an independent analyst and futures trader in Winnipeg, said.

 

He said that ongoing research has improved the varieties of canola available and at the same time increased the yield potential.

 

As a result, the size of the Canadian canola crop will continue to grow quite steadily over the next five to 10 years, not only in acreage but in yield potential as well, Klassen said.

 

"It used to be if a producer got 26 bushels of canola an acre, that individual would be ecstatic," Klassen said. "Now we are seeing producers average 34 to 36 bushels an acre even under adverse weather conditions like we did during the 2009 growing season."