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Shut out of China, Canada finds canola buyers in drought-damaged Europe

Published 2019-08-22, 11:32 a/m
Shut out of China, Canada finds canola buyers in drought-damaged Europe

By Rod Nickel and Gus Trompiz

WINNIPEG, Manitoba/PARIS, Aug 22 (Reuters) - Crop-scorching drought in Europe is providing Canadian canola farmers a timely new opportunity to move supplies that have piled up since China stopped buying this year.

Rising European sales are taking some of the sting out of losing the Chinese market for Canadian farmers, although ICE (NYSE:ICE) canola futures prices RSc1 are down 11% from a year ago.

Beijing suspended the licenses of Canadian exporters Richardson International and Viterra Inc VILC.UL this year and halted most other Canadian canola purchases, citing concerns about pests.

Meanwhile, drought that blighted planting, followed by pest attacks during the growing season, have put European Union rapeseed, as canola is known on that side of the Atlantic, on track for the smallest harvest in 13 years.

Canada and China have been locked in a diplomatic and trade dispute since December, when Canadian police arrested a Huawei Technologies Co HWT.UL executive at the request of the United States. Canada is the world's biggest canola producer and exporter, and China is usually its biggest market, crushing the crop into feed for fish and pigs, and into vegetable oil.

"With the challenges the Canadian industry has going into China right now, the big carryout, a big crop coming, we're looking for market access as an industry," said Chad Molesky, merchandising manager at Viterra, which is half-owned by commodity trader Glencore PLC GLEN.L .

Canadian canola sales to the EU have climbed for several years. But this crop year they could range between 1.3 million and 2 million tonnes, more than double the record high, Molesky said. Canadian canola competes in the EU market with imports from the Black Sea region and Australia.

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Canada exported 527,000 tonnes of canola to western European countries from July 2018 through June 2019, according to most recent Canadian Grain Commission data. Most shipments are to European crushers that process the oilseed into biodiesel, such as Archer Daniels Midland ADM.N , Cargill Inc CARG.UL and Avril SCA.

French consultancy Strategie Grains projects EU rapeseed imports to surge to a record 5.8 million tonnes in the 2019/20 season, up from 4.2 million in 2018/19.

"Canadian prices are ultra-competitive. They're looking to ship their supplies and need to sell to Europe," said a European oilseed trader.

Euronext rapeseed futures COMc1 hit a one-year high on Thursday, factoring in the small crop.

Two vessels of canola left Canada this month, destined for France and Germany, according to Refinitiv data. Four set sail from Canada to western Europe in July, one of which took the roundabout way to France from the western Canadian port of Vancouver, showing how far Canadian exporters are willing to go to sell canola.

Cargill Ltd CARGIL.UL , Viterra and Saudi Arabia-owned G3 are the only Canadian exporters certified to supply canola for European biodiesel.

Sales to the EU for biodiesel production require shippers and the farms they buy from to meet sustainability standards under the EU's Renewable Energy Directive.

Saskatchewan farmer Charlene Bradley said she would certify her farm to sell to Europe but the country elevators that buy her crops are not involved in the program.

Canadian farmers can become certified by filling out paperwork through their grain handler, and most already meet EU criteria, said Brian Innes, vice-president of the Canola Council of Canada industry group. A key requirement is that farmers are producing crops from land that has been in cultivation since at least 2008.

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"Especially given what's going on with China, anything to increase the market would be a good thing," Bradley said.

Chinese buyers have lately made small purchases of Canadian canola, but shipping privileges of Richardson and Viterra remain suspended, Innes said.

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