The Van Trump Report

Global Canola Market Faces Serious Supply Deficit

Canola markets face serious supply issues ahead with the crop in Canada taking a devastating hit from this year’s drought. Coupled with lowered output in Ukraine and Kazakhstan, production increases elsewhere won’t be enough to offset the losses. Canada’s production hit is particularly significant for the global export market, as the country accounts for about two-thirds of total global exports. I’ve heard some in Canada talking perhaps just an 11 to 12 million ton crop… Ouch!  

The USDA in August cut its projection for 2021/22 global rapeseed production by -4.6 million metric tons (mmt) while pegging ending stocks at a 14-year low of just 4.6 million metric tons. The production cut includes a -4.2 mmt decline in Canada’s crop with the USDA noting that above normal temperatures and scant rainfall throughout July intensified existing, widespread moisture stress. USDA also says that poor yield prospects in major canola-producing regions, coupled with concern for potentially tight animal forage supplies, have encouraged some producers to cut their canola for hay. The production decline is expected to slash Canada’s canola exports to 6.9 mmt, down -3.7 mmt from last year and the lowest volume since 2007/08.  

Australia and Russia will offset only some of Canada’s lost exports. Australia’s crop got a minor upgrade from the USDA which boosted output by +100,000 mt. Overall, the crop is expected to be about +400,000 mt greater than 2020/21 but that only lifts exports by about +250,000 to 3.45 mmt. USDA says even with a slight export increase expected from Russia, it will be far too small to compensate for trade reductions from Canada and other countries.

Canadian growers are already worried about being unable to fulfill contracts due to lower production and some analysts think there could be additional cuts still to come. This year’s drought is on its way to becoming the worst the Canadian Prairies have ever recorded and the worst ever in Canada, according to John Pomeroy, Canada research chair in water resources and climate change at the University of Saskatchewan.

There are reports that Canadian canola processors are sourcing supplies from competitors due to already tight domestic supplies. Canada’s stockpiles at the end of 2020 were down by about -24% from 2019, marking an 8-year low. Sergei Feofilov, chief executive officer of UkrAgroConsult, said his clients are telling him that Canadian firms have already booked 50,000 mt of Ukrainian canola for delivery. Imports are actually cheaper than domestic supplies right now. Josh Lawrence, a consultant with IKON Commodities in Australia, told Western Producer that Canadian canola prices are at such a huge premium to the rest of the world that on paper it looks like even Australian canola would be competitive at the Port of Vancouver. The USDA’s latest oilseed’s market update is HERE. (Sources: USDA, Western Producer, CBC)

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