Canola area in question, crushers and exporters wait

The debate is on regarding how many acres in Canada will go to canola in 2011, with domestic crushers and exporters alike keeping a close eye on the situation.

The area expected to be planted to canola in Canada this spring is projected to surpass record levels, but there may be some serious reconsideration of what ultimately goes into the ground given the extremely wet conditions that now exist across the Prairies, as well as the government forecasts for flooding.

Current strong prices for high-quality wheat could also result in a number of producers thinking twice about how much canola is seeded.

Chris Beckman, an oilseed analyst with the market analysis division of Agriculture and Agri-Food Canada, forecast that producers in Canada will seed 18.542 million acres of canola in  2011, which would be up from the 16.818 million seeded in 2010.

However, he acknowledged the extremely wet fall and anticipated flooding in the spring across a large region of the Prairies could have a serious impact on what goes into the ground.

Cash prices for canola are near $12 a bushel, but canola also requires a lot of inputs in order to achieve high yields, Beckman said.

A longer growing season is also required for the higher-yielding Argentine canola varieties as compared to the shorter-season, lower yielding Polish varieties, he said.

Ron Frost, a grain and oilseed analyst with Frost Forecast Consulting of Calgary, agreed canola area this spring is still very much undecided.

“A Canadian canola area base in the low 17 million-acre range just will not produce enough of a crop to satisfy the demand base, especially if yields fall below the average trend,” he said.

“In all honestly, I think the industry would like to see 19 million to 20 million acres of canola go into the ground this spring, which would leave room for problems during the growing season and quite possibly result in some extra canola to work with than had been anticipated when the dust settles on the production year.”

However, Frost felt canola area would likely be somewhere in the 17.7 million- to 18.4 million-acre range this spring.

Yield potential

Yields of the canola crop will be key, both Frost and Beckman agreed.

Beckman was projecting the yield potential for canola this spring, based on the high moisture content, would be hard pressed to meet the average trend line. Canola yields during the past three years have easily been above average.

Frost and Beckman also felt the abandonment of canola area in the spring, particularly in the extremely wet regions of Manitoba and Saskatchewan, will be a very important factor in the production of the crop.

“How much area is abandoned, and how below average canola yields fall, could have a significant impact on usage of the crop in the domestic and export sectors,” Beckman said.

Frost agreed any shortage of canola output will result in difficulties meeting the expansion of domestic processors in Canada as well as filling export requirements.

Canada’s domestic canola processing capacity at the end of 2010 was pegged by Beckman at 7.5 million tonnes. And while there are more crushing plants expected to be built during 2011, those facilities won’t be ready to come online until at least 2012.

He said Bunge was currently in the process of adding capacity to its crush plants located across Canada.

And a Regina company, Clean Power Concepts, has signed a memorandum of understanding with China’s Chongqing Grain Group to explore the feasibility of jointly building and managing a 600,000-tonne capacity canola crush plant somewhere in Western Canada during 2011.

This canola crush facility, if built, would be smaller than the ones recently built recently near Yorkton, Sask. by Richardson International and Louis Dreyfus. Both facilities, which came on line in 2010, have an annual canola crush capacity of roughly 850,000 tonnes.

The expansion and construction of other canola crushing plants in 2011 were seen resulting in Canada’s domestic crush capacity rising above 8.5 million tonnes in 2012 and placing even larger demand on available canola supplies.

Crush pace

Canada’s canola crush pace is already running at record highs and will continue to push those boundaries. Of course with record processing levels comes the need to keep those plants running and canola coming up the driveway on a regular basis.

Beckman projected Canada’s canola crush pace in the 2010-11 crop year will hit a record six million tonnes, surpassing the previous record established in 2009-10 of 4.788 million. 

He estimated the crush pace in 2011-12 will match the record level in 2010-11, assuming there is enough canola to go around.

However, Canada’s canola export program has also been quietly strong, and was ahead of the year-ago pace at present.

Beckman said Canadian canola exports in 2010-11 were expected to hit 6.7 million tonnes, which would be down from 7.183 million in 2009-10. But with the current shipping pace matching the year-ago level, Beckman acknowledged he may have to adjust his 2010-11 export forecast upward.

In 2011-12, he saw canola exports climbing back into the seven million-tonne level or slightly better.

Frost said the current stocks to use ratio for canola cannot continue to run at such a low level and not have some bullish price implications.

“The 2010-11 ending stocks picture for canola has been tightening, and depending on whose supply/demand balance sheets you are using, red flags are starting to pop up,” Frost said.

Anytime ending stocks of canola drop below one million tonnes, concerns about supply jump significantly, he said.

“There are ideas that if canola usage does not become rationed soon, there won’t be any canola left at the end of 2010-11,” Frost said, adding that Canadian canola carryover stocks for the current season are now running in the 500,000- to 800,000-tonne range.

Beckman estimated 2010-11 canola ending stocks at 1.1 million tonnes, but again acknowledged the forecast needed to be adjusted downward to accommodate the greater usage of the crop.

Canola ending stocks in Canada at the end of the 2011-12 crop year were projected by Beckman at 850,000 tonnes, due to the low carryout from 2010-11 and the reduced production forecast for the 2011 crop.

Frost said the rationing of canola has resulted in higher prices being paid out to the farmer, but the fact soybeans in the U.S. are fighting for area with cotton and corn means oilseed values in general should also continue to be well supported.

Wheat attention

Meanwhile, the high global prices being paid out for high-quality wheat supplies have a number of western Canadian producers giving some serious consideration to switching canola area back into wheat.

Producers are looking at the wheat cash bids in Canada which have climbed above $8 a bushel for nearby delivery, Frost said.

Those firm values, and the fact that it is an easy crop to grow, as well as short-seasoned, were attracting a lot of attention, he said.

All wheat area in Canada in the spring of 2011 was pegged by Agriculture and Agri-Food Canada at 22.966 million acres, up from the 21.126 million seeded in 2010. Of that forecast spring wheat area was expected to climb to 17.124 million acres from the 16.474 million seeded in the spring of 2010.

Beckman said the area to wheat could increase further depending on if values remain strong and the spring moisture situation proves difficult to seed canola.

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