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While in recent years the trade has been particularly successful in moving an ever increasing supply of Canadian canola, it faces an especially severe challenge in 2007-08. Growth in canola sales will almost certainly pause resulting in an output driven increase in ending stocks. (570 words)

If past performance is any indication of the future, the limits to expansion in canola production and marketing would appear to be physical and agronomic rather than economic. Canadian canola production, domestic consumption and exports have all seen steady, with some minor yield and area fluctuations, and strong growth. Further markets for Canadian canola are increasingly diversified and exports of canola oil are an increasingly important portion of the market. Canada has, in short, been particularly successful in capturing its share of what is a growth market.

With this background, the step up from typical exports and domestic processing in the six to seven million tonne range to over 9 million achieved last year and realistically expected this crop year, might seem a natural progression. And a seeded area of six million hectares, as indicated in this year's seeding intentions, necessary to meet this expanded demand.

A review of the two areas of recent expansion in Canadian canola sales which resulted in this recent growth suggests that matching recent sales, let alone sustaining the apparent growth, will be difficult to achieve.

The aggressively touted European, or most specifically German, biodiesel market has provided a very timely outlet for what appeared to be output surplus to conventional market needs. This industrial use market did not seem a good fit with the premium food market to which canola aspires, but the equivalent of about 800,000 tonnes of canola was crushed and the oil from it shipped to Europe at a time when end markets were needed. But this market for canola oil has with a change in political winds, all but vanished with almost the same abruptness it appeared in the fall 2005.

The other area of expansion is in south Asia including Australia. And there lies the explanation. Last year's Australian drought took sufficient toll on canola production to not only virtually eliminate Australian canola exports but even necessitate its importing of Canadian canola.

But prospects for Australian canola production are now much improved. Almost all Australian production regions have in recent months had a good "break" - the rain necessary for fall seeded canola germination. While at least normal rain will be needed to sustain the crop, the weakening of El Nino significantly increases the likelihood of this happening. As the 2007 Australian crop will not be harvested until late in the calendar year, it will be back competing for markets for the second half of the 2007-08 crop year.

If priced competitively Canadian canola will, of course, find immediate markets for bio diesel in Europe and even keep a foothold in markets close to Australia's back door. But past experience suggests that farmers are very patient when canola markets are under pressure and will not be inclined to accept prices necessary for canola to hold onto these markets. A build in carry over is therefore in prospect.

This is not to suggest that in the long term canola markets will not continue to grow as they have in the past, but that for a couple of years there may seem to be a pause in growth.

David Walker
June 18, 2007

This is a summary of a substantial canola situation and outlook report. Contact the author at davidw@openi.co.uk, for further information.