It’s time to be paid for oil content in canola

Growers have been paid for high protein in wheat for more than 40 years. It’s time they’re also paid for high oil content in canola.

Discussions on paying oil premiums have been around for years, culminating about a decade ago when a major push by farmers and farm organizations for the introduction of oil premiums was shot down by grain companies, citing additional administration, segregation requirements and testing costs. They also argued that export markets would be lost as foreign buyers would switch to alternative oilseeds such as soybean or palm, as canola would become more expensive. There was also resistance by some farmers who worried that if oil premiums were introduced, they would be offset by deductions for low oil content. That could result in a zero-sum game with all costs of such a pricing model being passed on through lower cash prices. And some argued that oil content is primarily driven by environment and climate, so the system would not be fair to all farmers.

However, oilseed markets around the world have changed and these arguments no longer carry the weight they did 10 years ago. Here are reasons why component pricing of oilseeds should be introduced in Canada now.

We stand alone

Canada is the only country in which premiums are not paid for high oil content in canola, according to Lyle Weber of Weber Commodities. He reports he has clients in Australia that have earned $30-40 per tonne — as much as $1.00 per bushel — in premiums for delivery of high-oil content canola.

Buyers in both Australia and the U.K. have paid premiums for high oil in canola since the 1980s. In the U.K., the current oil content standard is 40 per cent (at 8.5 per cent moisture) with a 1.5 per cent premium/deduction for each plus or minus one per cent deviation.

In Western Australia, the base oil content is 42 per cent (at six per cent moisture) with a 1.5 per cent premium/deduction for each one percentage above or below 42 per cent. In Eastern Australia, the oil standard is 40 per cent with the same 1.5 per cent premium/discount at the same moisture level. So a farmer in Eastern Australia with 46 per cent oil content would be paid a nine per cent (six per cent x 1.5 per cent) bonus, a significant benefit.

Crushers in Europe, South Africa and the U.S. offer various premium/discount programs for oil content in canola. Payments for high oil content of other oilseeds have been implemented as well. The National Sunflower Association in the U.S. even has an online oil premium calculator. Growers can enter their contract price, market area and oil content and calculate their actual returns.

Various U.S. soybean crushers offer component pricing. Some contracts have a base level as low as 19.6 per cent oil content and premiums for each 0.1 per cent above that standard.

The market has changed

The export market for Canadian canola is rapidly being replaced by domestic crush. About 50 per cent is exported now but by 2025 Canada is expected to have increased the domestic crush capacity to 18 million tonnes. If we reach the forecast 25 million tonnes of production by 2025, almost three-quarters of Canadian canola will be crushed domestically. The primary value of canola is in the oil, so why are we still selling it as simply a commodity instead of on the component for which it is sought? It makes sense for both farmers and crushers to be paid on that basis.

It is important to note that the premiums for oil content in Australia are for national crush only, not for exported seeds. Canada could implement a similar system, and most canola would be eligible for oil premiums. Given that most would be for the domestic market, we would not have to worry about a lower price due to the introduction of oil content pricing.

Farmers pay for more oil

Varietal selection plays a big role in high oil content. Recognizing this, for several years a Manitoba canola buyer was offering premiums for specific varieties known to have a higher-than-average oil content — in effect paying for it without testing or verification. Growers who grew those varieties on contract were guaranteed a premium, just like farmers who grow specialty oil canola qualify for higher prices. The sale of the company ended that premium program.

When asked about oil content premiums, a spokesperson for the Canadian Grain Commission said there was a lot of discussion a few years ago, but it was determined that premiums would put some producers at a disadvantage. Conversely, it was decided to increase the minimum requirements for oil content for canola variety registration. “Over the course of a couple of years, the oil content minimum requirement was increased by one per cent. This measure pushed the oil content higher for the entire western Canadian crop.”

A great example of the difference in oil content and returns by variety comes from a sunflower oilseed comparison by Texas A&M University in 2011. Eleven varieties were grown in a trial that looked at yield and oil content. Among them, oil content varied from 42.1 to 48.7 per cent. Based only on yield, the projected cash returns varied from $240 to $365 per acre, averaging $304 (all figures U.S.). But when the sunflower oil premiums/discounts were included, the return to the farmer ranged from $250 to $410 per acre with a trial average of $348.

This trial reflects the value that farmers are leaving on the table without component pricing. Instead of being paid for growing higher oil content, farmers bear the cost of research and development of new varieties of seed with higher oil through ever-increasing seed costs.

The final point regarding premiums on varieties is that they may lead to faster and greater increases in oil content. In the U.S. in the mid-1970s, a premium was offered to safflower growers for oil content over 34 per cent. Over the next 30 years, because of farmer selection of high-oil content varieties and research aimed at enhancing this trait, the average oil content has gone up by 15 points to 48-50 per cent. Compare those results to India, where no premium was offered to growers for high-oil safflower. Oil content there only rose from an average of 32 per cent to the 38-39 per cent level.

Higher N, lower oil?

Farmers should be paid for the added costs they incur for producing a premium product. Lyle Weber points out that there is a real cost of monitoring bins and turning them more frequently, as is required for higher-oil content canola. “There is a huge difference in handling and storing 50 per cent oil canola and 42 per cent canola and farmers are not being paid for this.” He cites the increasing frequency of grain dryer fires and heating in bins.

Farmers most opposed to component pricing of canola claim that oil is a function of weather rather than agronomic practices. Without a doubt, hot and dry conditions reduce oil content, as we saw in 2020 and 2021. However, drought and heat also reduced yields, thereby supporting prices. While farmers would see deductions for low oil content, higher commodity prices would likely compensate.

I have already pointed out that variety selection is a major determinant, but other management strategies influence oil content. The Canola Council of Canada even produced a fact sheet on management strategies farmers can practise to increase it. And recent research in Germany has revealed a relationship between the rate of nitrogen fertilizer and oil content, and it is not what most would suspect. Research by Brennan and Bollard in Australia found the same relationship. So as N rates increase, oil content decreases. While farmers continue to try to maximize yields through high fertilization, they may actually be reducing their component with the highest value.

This is especially important today, given record-high prices for fertilizer and public negativity toward its excessive use. If we had a premium system that encouraged oil production instead of canola production, we might save on fertilizer and be able to present a case of greater sustainability to the public.

Biofuel boost

Perhaps the biggest reason for pushing for payment of component pricing of oilseeds will be the potential for a skyrocketing demand for biofuel, a demand that will have to filled by oilseeds that provide the most oil per unit economically.

Lyle Weber feels the aviation industry will create a demand for biofuel that will outstrip the ethanol demand that drove prices up for cereals. He points out that to meet environmental standards, 97 per cent of all gasoline now sold in the U.S. contains ethanol. But as of 2019 only 0.88 per cent of aviation fuel comes from sustainable sources. To meet 2030 standards, three billion gallons of aviation biofuels will be required annually. If relying on soybeans, aviation fuel would require roughly 60 per cent of all the soybeans grown in the U.S. This is simply not feasible, so there’s immense opportunity for growth of high-oil content oilseeds.

Why little grower support?

I canvassed representatives of the grain commission, the Canola Council, the Canola Growers and the three provincial canola associations for their views on component pricing. Only Ward Toma of the Alberta Canola Producers Commission said their organization supports premium payments for high-oil content canola. “That (payment of oil premiums) has been the position of Alberta Canola for many years,” he said.

Today we purchase glyphosate with either 360 or 540 grams per litre of active ingredient. I doubt there is a farmer who would pay the same price for the 360 formulation, knowing that it takes roughly a third more to be equivalent to the 540. Farmers compare prices for fertilizer on equivalent formulations, not just on dollars per tonne of product. They willingly pay more for higher-quality parts that they know will last longer. So why are farmers opposed to seeking a higher price in selling a premium-oil content canola? Every other business in a free-market economy tries to maximize returns based on quality, why shouldn’t farmers do the same?

In the early 1990s most of the canola we grew on our farm in central Alberta was trucked south to Canbra Foods in Lethbridge. The only reason we trucked the canola 450 km south was because the Canbra crush plant paid a premium for high oil content, which resulted in prices higher than we could get anywhere else, even after trucking costs.

So 30 years ago, the technology to pay an oil premium was already in use in southern Alberta. Agronomists were already identifying high-oil varieties, allowing us to choose one which would return premium. But when Canbra was sold and the oil premium ended, we lost a premium market and never shipped canola south again.

In a 2007 Western Producer news story, then vice-president of the Canola Council of Canada, Dave Hickling, stated “The feasibility of a commercial payment system for oil is being seriously considered … It (oil content premium) may now be getting closer to reality.”

Far from getting closer to reality, oil premiums have fallen off the radar of most farmers and farm organizations. The fact is that farmers are not being paid full value for their canola. It’s time this discussion is opened again, or Canadian farmers will be left in the dust as others around the world sell oilseeds priced for the component the buyers really need — the oil.