By Connor Lynch
Canada’s canola market has been headline news in recent weeks, after China blocked exports from Manitoba-based Richardson International and Saskatchewan-based Vittera. Other exporters said that Chinese buyers had simply stopped buying.
While a startling and disturbing situation, market fundamentals still say that Canada has a lot of supply and China has a lot of demand, said Western Canadian market analyst Brian Voth, president of IntelliFarmInc.
Officially, Richardson’s export licence was revoked, as was Vittera’s, but no other company has suffered the same treatment. Instead, Chinese buyers have simply not been buying from Canadian companies.
The official line from the Chinese government is concerns about pests and bacteria in canola. Richardson and the Canadian government have both insisted that exports met accepted standards, and last month, new federal ag minister Marie-Claude Bibeau requested for a delegation of Canadian scientists to go to China.
The canola cutoff has widely been viewed as retaliation by China over Meng Wanzhou, chief financial officer of Chinese telecom giant Huawei, who was arrested by Canadian officials in December. China has demanded her release. Canada agreed to extradite Wanzhou to the U.S. to face charges of conspiracy to defraud multiple international institutions.
But Voth said that despite the apparent political motivation to push down prices, it’s more likely than not that China will end up buying Canadian canola.
First is the question of supply. If China decides not to buy canola from Canada, it can’t get it elsewhere, Voth said.
Fun fact: Canola is a trademark name, short for Canadian oil, low acid. Canola was engineered here in the 1970s and we ship a lot to China. About 20 per cent of Canada’s total production goes to China. China buys about 40 per cent of our total canola exports. Last fiscal year, we sent 4.3-million tonnes to China. That’s a lot of canola that China can’t realistically find elsewhere, he said.
Of course, the other market fundamental is demand. It’s possible, though highly unlikely said Voth, that China’s canola demand has actually dropped. If their African Swine Fever issue, a hog disease that has ravaged China’s hog herds, is much larger than they’ve reported, that could mean a significant decrease in demand for meal. But meal’s a byproduct; the main product from canola is the oil, for human consumption, in China. So, it’s unlikely that China’s demand is down, he said.
The simplest explanation is that China is using its huge buying power to push down prices, and will be buying up large amounts of canola in the coming weeks and months, said Voth. He added that China front-loaded its canola consumption, having bought about 2-million tonnes from last August to December, giving them breathing room to hold off on more imports.
Prices have started to creep back up, said Voth. When the Richardson licence was revoked, it knocked between $7 and $8 off the price of a tonne of canola. The price hit a low of $451 per tonne but has rebounded to around $468 per tonne. “It’s starting to come back, which doesn’t make any sense given the story (that canola doesn’t meet standards). Unless the story’s wrong.”
Farmers concerned about the situation should be patient. If by May canola isn’t moving and you haven’t planted yet, then it’s time to consider changing your planting, Voth said. “It’s definitely a big issue if this all comes to fruition. That’s the question mark.”
Owen Sound-area cash crop farmer Jeff Curry, who farms 10,000 acres, including between 1,000 and 1,300 acres of canola annually, plans on cutting back a few hundred acres of canola this spring because of the international dispute. He’ll still make money, just not as much, he said.
Time will tell if he cuts back his acreage more, he added.
For her part, Eastern Ontario cash crop farmer Jennifer Doelman is sticking to her 420 acres of canola. Her planting decisions are agronomic as much as anything else; canola in her rotation lets her squeeze in winter wheat more easily. The price hit “won’t change my plans, but I’m not trying to convince people to switch from soybeans to canola.” It’s still a good product with solid demand as far as she’s concerned.
Ontario’s canola industry is small compared with Western Canada, with about 45,000 acres grown each year.