Canada set for record canola crush on China demand

* Crushing volume up 8 percent, hits record level

* Crushers tap Chinese demand for canola oil

* Higher volume underpins ICE canola futures

By Rod Nickel

WINNIPEG, Manitoba, May 21 (BestGrowthStock) – Canada is on pace to
crush a record volume of canola this crop year as new plants
open and China’s appetite grows for canola oil and meal.

Domestic demand for the Canadian rapeseed variant has come
at a good time, underpinning ICE canola futures that would
otherwise be under pressure from projections for big canola and
U.S. soybean plantings, said canola trader Bill Craddock.

Crushers have processed 3.5 million tonnes of canola in
2009/10, up 8 percent from a year earlier, the Canadian Oilseed
Processors Association said on Friday. [ID:nN21181191] The data
also includes that from an established plant joining the
association this year.

China has restricted imports of canola seed since November,
however that barrier on the raw product has contributed to a
surge into the country of canola oil and meal that crushers
produce.

“China is really a wild card in what happens in the next
year,” said Dave Hickling, vice president of utilization for
the Canola Council of Canada. “Assuming we have big acreage and
big production, we’re going to need China just to maintain some
healthy business.”

China is Canada’s target market in 2009/10 for canola oil
— used in cooking and food like margarine — buying 225,000
tonnes from August through February, or 57 percent more than a
year ago. Traditionally, China doesn’t buy any canola meal,
which is used in livestock feed, but it started importing it as
well in February, Hickling said.

Canada is the world’s third-largest producer of
canola/rapeseed and its biggest exporter.

Crusher demand is tied to a big expansion of Canadian
crushing capacity in the past year by Cargill [CARG.UL], Louis
Dreyfus and Richardson International that has coincided with
China’s demand for the products they produce.

CANOLA FUTURES STEADY DESPITE BIG PLANTINGS

Demand has helped ICE July canola futures (RSN0: ) stay at
roughly the same price where it was in mid-March, offsetting
pressure from bearishly large plantings, Craddock said.

“I’m quite surprised, to be honest, that the market has
held up where it is … given that huge South American
(soybean) crop and the big acreage of soybeans going into the
U.S. this year,” he said.

The canola crush margin, a calculation of potential
profitability, has held steady from a year ago, despite
pressure from a strong Canadian dollar.

However bearish signs for crushers may also be on the
horizon.

U.S. shipping restrictions on canola meal against major
Canadian crushers Archer Daniels Midland (ADM.N: ), Bunge Ltd
(BG.N: ) and Viterra (VT.TO: ) (VTA.AX: ), due to salmonella
contamination, have sharply reduced exports to Canada’s largest
meal market. Overall canola meal exports are down nearly 11
percent, although exports to Asia have spiked.

It is also unclear whether the weak euro will cause
price-conscious European buyers to back off canola oil imports,
Hickling said.

“We’re pretty close to being in balance for supply and
demand,” he said. “If we experience market disruptions, then we
likely won’t be crushing at capacity.”

Investing Basics

(Reporting by Rod Nickel; Edited by Sofina Mirza-Reid)

Canada set for record canola crush on China demand