Shrinking Canada canola oil content pinches crushers, exporters

Fri Oct 26, 2012 12:32pm EDT
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By Rod Nickel

WINNIPEG, Manitoba (Reuters) - Supply worries about Canada's disappointingly small canola harvest this year are compounded by the oilseed's reduced oil content, crimping profits for crushers and leaving food companies to scramble for other vegetable oils.

Expectations were high early in the crop year that a record-large canola crop in top grower Canada would compensate for some of the damage the drought did to U.S. soybeans. However, mid-summer heat in Western Canada during canola's vulnerable flowering period reduced yields.

The crop came in smaller than expected at an estimated 13.4 million metric tonnes and contains a lower percentage of oil than usual, government data shows, hitting crushers' profit margins by an estimated C$8 per metric tonne for every percentage point lower than last year.

"It poses a problem for exporters and crushers," said Tracy Lussier, manager of canola trading for Louis Dreyfus Canada, which acts in both roles. "If you lose a percent of oil, you lose a significant amount of money."

Shorter supplies of canola oil come as projected stocks of U.S. soyoil, a competitor in the global vegetable oil market, for the just-started 2012/13 crop year look to be the smallest in nine years at 576 million tonnes.

The world's stocks-to-use ratio for vegetable oils, a measure of supply to demand, will reach its tightest level in 2012/13 since the mid-1970s, due to relentless demand growth, especially in China, Rabobank said in a report this month.

About three-quarters of the world's vegetable oil production is used for food purposes like cooking oils, margarine and spreads, with biodiesel also a major use.

Top-grade canola has a mean oil content of 43.5 percent, down from last year's 45.2 percent and slightly off the 10-year average of 43.8 percent, according to a sampling program by the Canadian Grain Commission, the industry's regulator.   Continued...