China Buying Spree Stokes Shortage Fears for Top Canola Supplier

(Bloomberg) -- 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, Manitoba. “The market's also trying to encourage farmers not to hang onto their canola and to sell it now.”

Strong global demand for Canadian canola threatens to erode stockpiles amid the 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% of its output is shipped to 50 countries, according to the Canola Council of Canada. The crop supports 43,000 Canadian farmers and contributes C$26.7 billion ($20.9 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 near-term supplies while encouraging farmers to sell. March futures reached a contract high last week and prices remain around C$700 a metric ton.

Canada's 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 the country's statistics agency, 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% 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.

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