Canadian growers harvested a record-large canola crop in 2011, but heavy use pushed March 31 stocks to their lowest level since 2005.
Tightness in the canola market reflects strong demand for crush and exports, said Greg Kostal, Kostal Ag Commodities, Winnipeg.
"The market has well anticipated what it needs to do with old crop-new crop spreads," said Kostal in a MGEX conference call. He commented after Statistics Canada released data on March 31 grain and oilseed stocks.
The July ICE Canada futures contract surged more than one-fourth since December to trade around C$620 per metric ton May 7, about C$50 higher than the November contract.
The U.S. canola industry, concentrated heavily in North Dakota, is less than one-tenth as large as the Canadian industry but market conditions are similar, said Barry Coleman, executive director of the Northern Canola Growers Association, Bismarck, N.D.
"The robust demand for canola seems to play out equally in both Canada and the United States," said Coleman. Many restaurants have switched from other oils to canola oil and consumers are becoming more aware of the low level of saturated fat in canola oil.
U.S. canola plantings may rise this year to about 1.25 million acres after wet fields cut planting to about 850,000 acres last year. The record high U.S. acreage was near 1.3 million in 2003.
Canadian growers last year harvested more than 14 million metric tons of canola. That represented a gain of 10 percent from the previous year and more than tripled the harvest a decade earlier.
Growers' farm-gate receipts last year reached C$7.8 billion, putting canola in the lead as Canada's No. 1 cash crop. Wheat came in second at C$5.1 billion.
Heavy Export Demand
Last year, Canada exported 46% of its canola and crushed 41%, and the remainder went into seed, feed, and waste.
Japan, Mexico, and China bought two-thirds of Canada's 7.9 million metric tons of canola seed exports last year. Canada also exported about 85% of its meal and 88% of its oil last year.
Shipments to the United States accounted for 75% of Canada's canola meal exports and 60% of its canola oil exports.
Positive for U.S. Markets
How do canola product imports from Canada affect the U.S. industry?
"I would say it helps the U.S. canola industry," said Coleman. "Restaurants and grocery stories want a consistent, reliable supply year to year We can't supply it from what we grow in the United States. The Canadian production helps create a nice mass market."
Thanks to strong international demand for oilseeds and products, Canada's March 31 canola stocks dropped nearly one-third from last year to 4.3 million tons.
Stocks fell short of average trade expectations of about 4.7 million and low-end estimates of 4.4 million tons, said Kostal. "StatCan revised lower the Dec. 31 on-farm inventory from 9.3 million to 9.1 million," he noted.
Based on March 31 stocks and demand prospects, Kostal expects stocks before harvest to fall to around 1 million tons. That would be down from 1.8 million tons last year and the lowest carryover since 2004.
Production Likely Up Again
USDA's Foreign Agricultural Service last month said Canada's anticipated record seeding of canola this year likely will increase Canada's combined production of canola, soybeans, sunflowers, and flax to more than 20 million metric tons, up nearly 7% from last year. That compares with total U.S. oilseed production last year of more than 91 million metric tons.
FAS projects Canada's oilseed exports to reach 11.5 million metric tons in 2011-12 and slightly less than that in 2012-13 because of tight supplies. Canola and soybean crush also likely will continue to run at a strong pace of about 5 million metric tons. FAS expects Canadian exports in 2012-13 to increase slightly to 3.4 million metric tons of meal and 2.8 million metric tons of oil.
Kostal said access to some of the new crop in August offers prospects to ease the old-crop tightness. And he thinks the trade perceives that Statistics Canada has underestimated the beginning supply of canola seed.
"Maybe that's hopeful," he said. "It makes everyone nervous."