Canadian farmers could grow canola on practically every arable acre in the country and it wouldn’t put much of a dent in declining global vegetable oil stocks.
Let’s explain. “Vegetable oils” is an umbrella term for all the world’s edible oils: canola, soybean, olive, flax, rapeseed, palm, peanut, corn and more — basically anything that produces an oil product people eat, says Bruce Burnett, director of markets and weather information with Glacier FarmMedia.
Not all of these individual oils have declining stock levels, he says. “Olive oil may be up, for instance. But the overall trend is that vegetable oil stocks are dropping. It comes down to production versus what we’re consuming and our consumption has been going up dramatically over the last few decades,” explains Burnett.
“Roughly speaking, there has been an average increase in vegetable oil consumption of 8.6 million tonnes per year over the last decade,” he adds.
Remember, that’s just an average. Between the 2018/19 and 2019/20 crop years alone, there was a 12.8 million tonne increase in demand for vegetable oil. “It’s the relentless grind of higher use,” he says.
This has pushed canola futures through the roof with nearby futures values hitting their highest levels in seven years. Burnett says other oilseeds are also seeing higher prices as soybean and palm oil values move higher in lock step with canola.
Increased consumption is also a sign of the world becoming more developed over time. “There’s a hierarchy when it comes to diet,” says Burnett. When people have more money to spend they tend to consume fewer staple starches, like rice, and more proteins, like meat and eggs. They also start consuming more vegetable oils.
Rapeseed is a good example. The global rapeseed oil (which includes canola) stocksto- use ratio is expected to be 6.4 per cent in the 2020/21 crop year. It’s a new low in a steady decline that’s been going on since 2014/15, when the stocks-to-use ratio was 21.4 per cent — at that time the highest it had been since before 2010.
“To put it into perspective, 6.4 per cent is about 23.3 days of use,” says Burnett is about 23.3 days of use,” says Burnett. “That’s less than a month of supply.” To help boost stock levels, the argument could be made to offer incentives to oilseed producers to grow more crops and produce more vegetable oil. But it’s not that simple.
“The largest oil crop is palm oil,” says Burnett. But that’s a tree with a long production cycle. “If you plant a tree now, it’ll start producing three or four years from now.”
For other oilseed crops, edible oil is not the production driver. “Soy is grown primarily for meal, the oil is a by-product,” says Burnett. “If you were to add 10 million acres of soybeans, it won’t give you a good bang for the oil buck. Olives and cotton, too — oil is the by-product and not the main reason for growing them.”
It means that no matter how low global vegetable oil stocks get, there is little benefit for farmers to increase production of some crops because they either have a slow production cycle or, as is more often the case, there’s no money in increasing production just to meet oil demand.
“Canola is where you have some latitude for change,” says Burnett. But even there, the die is mostly cast. “You’ve got at least half of the crop already planted in the EU, where it’s a winter crop. We might be able to produce at least two million or three million more acres of canola here, but that’s not going to make a huge dent in the global supply and demand market.”
Burnett says the overall demand for canola oil exports is roughly 3.4 million tonnes per year, which supports the domestic crushing industry and Canadian crushers are having a banner year.
“Both meal and oil prices have sky rocketed in the last couple of months so there’s this ironic thing where canola is $13 to $14 a bushel and crushers are still making a decent margin,” says Burnett, adding that, according to Statistics Canada, October saw a record crush of 931,060 tonnes, which is impressive. “It’s hard to set records in crush because you have a finite number of plants doing the work.
“There’s a strong signal here to grow canola, but there’s also a strong signal to grow other things, too,” says Burnett, citing $9 peas and $6 barley as two examples where farmers have good options.
Global vegetable oil stocks are going to continue to be challenged as demand shows no signs of slowing down. The trouble for growers hoping this will lead to higher and higher canola prices is that edible oils are largely interchangeable. “If you can’t get canola oil, you go buy sunflower oil,” he says.
What it does mean, though, is that canola prices are unlikely to have a massive downswing anytime soon. “The chances of the global vegetable oil situation being solved in one year is minuscule,” says Burnett. “These prices are going to be with us now for a few years.”