Canola oil demand rising as African swine fever reduces China's soybean crush

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At first it seems counterintuitive, since canola values usually follow soybean prices, but reduced demand for soybeans in China as a result of African swine fever (ASF) is contributing to a bullish scenario for canola prices, according to a senior analyst with Oil World.

As China’s demand for soy protein has fallen due to the culling of the country’s hog herd, soybean crush volume has dropped by as much as 10 million tonnes (per year), says David Mielke of Oil World. As a result, there’s not as much soybean oil to supply the vegetable oil market.

“This is why African swine fever is bearish for soybeans and proteins and at the same time bullish for vegetable oils,” he explains, in the discussion below, following his presentation at the FarmTech conference in Edmonton, Alta.

While China continues to restrict Canadian canola seed imports, canola oil imports — both directly and indirectly via countries such as the United Arab Emirates — have increased significantly. Facilities that can process canola in the UAE are operating at maximum capacity thanks to the strong return on selling canola oil into China, according to Mielke.

“This is already at the maximum limit because crush margins are fantastic and they’re at maximizing capacity in the United Arab Emirates, so moving forward this won’t be a growth market,” he says.

Add increasingly tight palm oil supplies to the equation, and Mielke believes a global vegetable oil shortage in 2020 will lead China to boost its purchases of Canadian canola sooner than later.

“We are probably more optimistic when it comes to exports in the second half of the season, because we expect China to come back to buy Canadian canola sometime in the next six months. We feel Chinese demand for vegetable oils should be increasing,” he says.

Watch the full interview with David Mielke and RealAgriculture’s Jessika Guse as the pair sat down and discussed global oilseed markets, the impact of ASF, and planting intentions for this upcoming spring:

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