Extremely tight canola ending stocks expected

Canola supplies in Canada are expected to be extremely tight at the end of the 2012-13 season ending July 31, based on strong usage of the commodity by both the export and domestic sectors.

The question remains, for many market participants: How tight will the supply situation get?

Private trade estimates are currently pegging 2012-13 canola ending stocks in the 350,000- to 600,000-tonne range, which will put canola supplies in the extremely tight category.

"Anytime you have canola supplies that drop below one million tonnes, those are extremely tight," said Jerry Klassen, manager of GAP Grains and Produits in Winnipeg.

He acknowledged that the strong export pace combined with increased crush capacity has resulted in very strong usage of the crop.

Mike Jubinville, an analyst with ProFarmer Canada in Winnipeg, said a lot of the export demand that came forward for canola was front-loaded, and once those commitments have been covered, export demand for canola will drop off.

There were already signs that the export sector has begun to back off on trying to obtain canola from the farming community, he said.

However, he did note that the need of domestic processors to cover canola commitments continues at an aggressive pace.

Agriculture and Agri-Food Canada, in its December supply/demand table, pegged canola ending stocks for 2012-13 at an extremely small 350,000 tonnes. At the end of the 2011-12 season, canola supplies in Canada totalled 728,000 tonnes based on AAFC projections.

"To tell you the truth, if there is indeed only 300,000 to 400,000 tonnes of canola in Canada at the end of the current 2012-13 season, that would be barely enough to load onto any kind of vessel," said Darren Frank, an analyst with FarmLink Marketing Solutions in Winnipeg.

The canola, he said, would be so sparsely located across a large portion of Canada, that it would be very difficult to secure those supplies.

Exports of Canadian canola in 2012-13 have been forecast by AAFC at 7.2 million tonnes, which would be down from the record 8.699 million exported in 2011-12. Domestic usage in 2012-13 was pegged by AAFC at 6.555 million tonnes, which would be down from the record 6.999 million in 2011-12.

Frank said that with domestic crush capacity in Canada still expected to increase further over the next couple of years, production will need to increase in order to meet commitment goals.

Some individuals have suggested that canola ending stocks could run into negative numbers, if the pace of usage does not let up soon.

However, Jubinville said usage will slow as the scarcity of supply rations demand. "There is no such thing as negative ending stocks," he said.

— Dwayne Klassen writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.