CHINA CANOLA BINGE PUTS CANADA AT RISK OF RUNNING SHORT.

Canadian supplies may be pinched

Canada risks running short of its mainstay canola crop as China fuels a global buying binge of the oilseed used for vegetable oil, processed foods and animal feed.

China has accelerated imports of canola from the top-producing nation, causing Canadian stockpiles to dwindle and stoking fears among traders of looming shortfalls in the current season as other countries step up their own purchases. Such supply concerns pushed canola prices in recent weeks to their highest levels since March 2008.

“We're on the path to run out of canola going into spring,” said Ken Ball, senior commodity futures advisor for PI Financial Corp. in Winnipeg. “The market's also trying to encourage farmers not to hang on to their canola and to sell it now.”

Strong global demand for Canadian canola threatens to erode stockpiles amid the COVID pandemic and further propel prices upward, driving up costs of vegetable oil, animal feed and biofuels made from the oilseed. Canada is the world's top exporter of canola and about 90 per cent of its output is shipped to 50 countries, according to the Canola Council of Canada. The crop supports 43,000 Canadian farmers and contributes $26.7 billion yearly to the nation's economy.

Canola's rally lifted prices for the oilseed set to be delivered in March over what will be delivered in November following the next harvest. That should reduce buying interest for nearterm supplies while encouraging farmers to sell. March futures reached a contract high last week and prices remain around $700 a tonne.

The federal agriculture department last week forecast that the 2020-21 crop year will end July 31 with 1.2 million tons of canola. That's the lowest carry-over since 2013, according to data from Statistics Canada.

Exporters, oilseed crushers and traders are awaiting year-end numbers on Canadian canola stockpiles from StatCan, to be released Feb. 5, to glean insights that should help determine if fears of shortages are real or unfounded.

China is the biggest importer of Canadian canola this season, even after blocking shipments from two key exporters — Richardson International Ltd. and Viterra Inc. — since 2019. The Asian nation imported 1.2 million tons from licensed facilities from August to December, Canadian Grain Commission data show. Other nations including Japan, the United Arab Emirates and France also stepped up purchases.

“Countries are buying up crops, they don't want shortages,” said Lawrence Klusa, president of Winnipeg-based advisory firm Seges Markets. He doesn't fear shortfalls.

“We won't run out because the price will go higher,” Klusa said. “Exports will slow down.”

Canola supplies haven't yet reached the point where they're too small and scattered to export, though that could happen later in the season, said Keith Ferley, a commodities specialist with RBC Dominion Securities.

“With exports running over 33 per cent above last year's pace, strong crush and a smaller crop, traders will be asking what's actually left out there to sell,” he said.

China is also scooping up millions of tonnes of barley from Canada and France that have yet to be harvested, as its appetite for animal feed grain spills over into orders for next year's crop, Reuters reports.

China has bought huge volumes of foreign crops to feed a pig herd that is rebuilding after the deadly African Swine Fever epidemic led to the culling of hundreds of millions of hogs.

Chinese buying has contributed to higher prices for key crops and to food inflation worldwide as concerns about food security during the pandemic drive governments and industry to stock up. Benchmark corn prices have hit their highest level in 71/2 years.

Beijing is aiming to plug a gap in supply after diplomatic tensions with Canberra led to the imposition of a trade-sapping 80.5 per cent tariff on Australian barley.

A large amount of Canada's 2021 barley crop has already been booked by Chinese buyers, traders said, with one citing at least 1 million tonnes. That would be in line with at least 1 million tonnes of new-crop European barley thought to have been sold so far, traders said.

Some said France would supply the European volume, with one trader putting French sales at up to 2 million tonnes, although others said the sales were on an optional basis and could be sourced partly from Ukraine.

Shipment would be mainly over July-September, traders added.

Barley from Europe and Canada next summer will contribute to feed supply as China awaits its next corn harvest and maintains a steep tariff on Australian barley, said Helene Duflot, analyst at Strategie Grains.

“The fact there have already been new-crop purchases from France and Ukraine, probably, shows that China is not about to change its mind on Australia,” she said.

China's tariff has slashed Australian barley shipments, handing opportunities to other, more remote suppliers. For the European Union, collectively the world's top barley exporter, that has meant France, as the only EU country fully accepted to supply barley to China.

WE'RE ON THE PATH TO RUN OUT OF CANOLA GOING INTO

SPRING.