Canola Displacing Soya In EU
28 March 2006 Crushers in the EU are replacing soybeans with canola due to the latter’s higher crush margins thanks to the boom in demand for biodiesel. While canola oil prices have surged, unprocessed canola remains at the same price, as the boom in biodiesel has not yet reverberated down through the chain to the grower level, according to the US Department of Agriculture’s Foreign Agriculture Service (USDA-FAS).
Since November 2005, the EU has become a net soybean oil importer, a surprising fact when one considers that as recently as the 2002/03 season, the region exported nearly 660,000 metric tons (MT) of soybean oil. Similarly, the EU has recently become a net canola importer, bringing in 36,000 MT in the fourth quarter of 2005. USDA-FAS expects this trend to continue, and some forecasts predict that EU canola oil exports for 2005/06 will be only 65,000 MT, compared to 139,000 in 2004/05. Additionally, EU canola oil imports are forecast to increase to 290,000 MT in 2005/06, compared to 33,000 MT in 2004/05.
Crush margins for canola have driven EU crushers to switch from soya to canola. For both soybean and canola, processing costs have increased sharply as a result of rising energy costs. Canola oil prices in the EU have risen dramatically so far this season, from US $636 per ton in August 2005 to US $746 per ton in February 2006, according to the UK based Home-Grown Cereals Authority (HGCA). The price difference between canola oil and soybean oil now stands at US $200 per ton in the EU, a 58% increase compared to three years ago.
The Soybean Trade
The EU-25 is the world’s largest importer of soybean meal, accounting for almost one-half of all the soybean meal imported. The turnover of EU crushers from soybeans to canola also is affecting soybean imports negatively: in January 2006, soybean processing in the EU was down 18% on the year.
Soybeans imported to the EU come mainly from Brazil, as imports from the US have declined, mainly because Brazilian soybeans generally have a higher protein and oil content, and because European crushers prefer non-GM soybeans, and those are more available in Brazil. Also, US soybeans are generally price competitive between October and December (during the harvest period), while the Brazilian shipping season is longer.
USDA-FAS Paris reports that after an 11% decrease in French soybean meal imports in marketing year 2004/05, imports have increased by 8% during the first 6 months of marketing year 2005/06. The reasons for this increase is that prices have not been very high in the past few months, and the French feed industry appears reluctant to switch from soybean meal to canola meal.
With decreasing crush margins for soybeans, the preference in the EU is to import soybean meal and soybean oil rather than to produce it. Imports for both are increasing.
Another notable fact is that Norway is the third largest supplier of soybean oil and soybean meal to the EU. Norway imports soybeans from Brazil, crushes them, and then exports the soybean oil and some soybean meal to the EU.
Canola’s Rise
The rapid increase in consumption of vegetable oil, mainly canola oil for biodiesel, is boosting import demand for canola. About 95% of the current demand growth within the EU is due to new biofuels requirements. Despite record canola crushings, oil production is not keeping pace with demand. This is widening the domestic supply gap and will boost EU import demand for the foreseeable future, according to USDA-FAS.
One of the main problems is a lack of crush capacity in the EU. This has turned out to be bad for the canola prices, and a rather good thing for the canola oil. It has created a profitable crush margin and a positive situation for canola crushers in the EU. Crush margins have been attractive since 2004, continue to improve. However, low prices for canola also mean that EU farmers have not yet really benefited from the biodiesel boom, though as demand remains high for canola oil, the trend is likely to bend this direction.
Although EU canola prices are depressed and undervalued relative to canola oil, they are currently 25% above Canadian canola prices, and are higher then world market prices. Some forecasts suggest that imports from third countries will increase to 420,000 MT in 2005/06 and that about 200.000 MT will come from Australia.
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