Canada rushes to crush more canola despite crop crunch

Ceres Global Ag

21/01/2022 12:00

By Rod Nickel
    WINNIPEG, Manitoba, Jan 21 (Reuters) - Soaring demand for
Canadian canola oil used in food and fuel has resulted in plans
for a massive increase in capacity to process canola seeds,
including this week's announcement https://www.reuters.com/business/energy/federated-co-op-agt-build-c360-mln-canadian-canola-crush-plant-2022-01-17
 of a C$360 million ($289 million) crush plant project.
    But while buyers are lining up, some analysts wonder if
there is enough of the crop to go around and doubt all the
projects will proceed. 
    Canola  RSc1  hit record high prices last year due to strong
vegetable oil demand and a severe Canadian drought that shrunk
crops in the world's top producing country. Palm and soybeans
are also in tight supply https://www.reuters.com/article/vegoils-world-output-insight-idTRNIKBN2G1019,
 helping drive up food inflation.
    Federated Co-operative Limited (FCL) and partner AGT Food
and Ingredients said on Monday they would build a Saskatchewan
plant to crush 1.1 million tonnes of canola annually to supply
oil for FCL's renewable diesel facility.  urn:newsml:reuters.com:*:nL1N2TX1B5 
    Richardson International, Ceres Global Ag Corp  CRP.TO ,
Cargill Inc  CARG.UL  and Viterra Inc announced similar plans
last year, drawn by demand for canola oil in foods like
margarine and salad dressing, or for production of low-emitting
fuels.
    Combined, the plans would increase Canada's canola crush
capacity by 6.8 million tonnes, or 62%.
    That is a tall order to fill for Canadian farmers, whose
canola production peaked in 2017, said Marlene Boersch, managing
partner of Mercantile Consulting Venture. She is skeptical that
all of the crush plants will materialize.
    "We do have a (crop) production problem. I don't think we'll
see these substantial investments for years to come." 
    Output concerns go beyond last year's drought. Canola
acreage also hit a peak in 2017 and yields were flat from
2017-2020 before the drought.
    Patrick Bergermann, FCL's associate vice-president of energy
roadmap, expects its plant to purchase some canola that would
otherwise go for export, which usually accounts for about half
the annual crop. 
    FCL's plant, which may open in 2025, pending Ottawa
finalizing its clean fuel regulation, will add value both from
generating oil for fuel and from meal for use as a potential
food protein source, he said.
    "There's still ample opportunity for the industry to add
crush capacity," he said.
    For crushers to attract more canola seed away from export
channels, they would have to bid aggressively for it, which
would reduce margins, said Ken Ball, a commodity futures advisor
with PI Financial. He expects project delays or cancellations.
    Saskatchewan farmer Bernie McClean says the new crush plants
will reduce farmers' vulnerability to trade restrictions on
Canadian exports, such as from China. Farmers may boost
plantings if they can successfully grow canola in hotter, drier
areas, he said. 
    McClean, who sows 40-50% of his fields with canola, does not
intend to plant more in the future, however. Sowing canola too
often on the same fields can spread crop disease.
    "If we get too carried away, Mother Nature has a way of
coming around to bite us in the butt," McClean said.
    The Canola Council of Canada industry group sees production
rising to 26 million tonnes by 2025, a 33% increase from
pre-drought output, based on higher yields per acre.
    Canola Council Chief Executive Jim Everson expects
productivity to increase as companies develop more robust seeds
using gene-editing technology, but he could not identify any
specific, promising seed products in development.
    Demand, however, continues to rise, enticing the crushers. 
    A proposed rule is expected early this year from the U.S.
Environmental Protection Agency approving canola for use in
making renewable diesel or greener jet fuel, Everson said. 
    North American biofuels could consume some 6.5 million
tonnes of canola annually by 2030, nearly four times the current
volume, he said.

($1 = 1.2458 Canadian dollars)

 (Reporting by Rod Nickel in Winnipeg
Editing by Marguerita Choy)
 ((rod.nickel@tr.com; Twitter: @RodNickel_Rtrs;
1-204-230-6043;))