Bearish Forecasted Canadian Canola Crop to Loosen Global Fundamental Picture

Prices of Canadian Canola accelerated to record highs in 2021 on drier conditions in Canada while higher prices in the vegetable oil mix also exacerbated the already bullish picture. A projected decrease in global rapeseed production to 71 million mt in 2021-22 marginally below the 2020-21 marketing year is keeping all market players worried. The lower number arose from downward revisions of production figures of various major producers.

Canadian Canola production in 2020-21 was 12.6 million mt, a whopping 6.89 million tonnes below the previous year’s output of a little under 20 million mt. In Saskatchewan, Alberta and Manitoba, top canola producing provinces and throughout the Canadian Prairies, production was significantly low, even offsetting the higher harvested area. Poor weather conditions occasioned by drought in the Canadian Prairies caused yields to be down to 25 bushels per acre (-40%) the lowest in 14 years.

Plantings for the 2022-23 marketing year is projected to also be cut back by 3%, 8.7 million hectares short of the planted area the previous year as farmers switch to other crops. Production for the 2022-23 marketing year according to Tridge’s sources is predicted to recover to 20 million mt. Hence making up for the 12.4 million mt of canola lost in the previous year on the back of higher crop yields. Adding to this is Canadian canola exports predicted to double YoY to 10 million mt in the 2021-22 marketing year.

This is good news for exporters, crushers, and processors. Higher production will create a bigger pool for both exporters and crushers to bid for seeds to export to other markets for the former and crush for meal and oil for the latter. On the back of increased production and the incessant growth in demand for canola oil for biodiesel and food usage, plans have been announced in Canada to enormously expand the crushing capacity.

The ongoing war between Russia and Ukraine is expected to impact oilseeds production from the FSU region where reports suggest some fields have been occupied by fighters and the increasing unavailability of farmhands to till crops. The expected increase in Canadian canola is thus welcoming as the gains will offset some of the losses that may come from the impact of the continuing state of affairs.

It is on the horizon that there is increased demand for vegetable oil from the food services sector and elevated demand from European and Chinese users of canola. During December-February, when palm oil solidifies, there would be a huge shift to canola/oilseed rape (OSR) for biodiesel production – the higher Canadian crop would thus help in loosening a tight global fundamental picture.