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Flood of bad news pushes canola prices lower
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Flood of bad news pushes canola prices lower

April has been a month of steady decline for canola futures, according to Barry Coleman, executive director of the Northern Canola Growers Association. It has been in a range of $450 to $470 a ton and is now in the lower half of the range at $459.

“Prices have been weakening as they feel the downward pull of crude oil and the general worries of demand suppression as a result of the COVID-19 pandemic in both the commodity and financial markets,” Coleman said. “There is a lot of uncertainty going forward and growers feel the price situation has weakened going forward.”

The local cash prices at crushing plants ranged from $14.32 to $14.94 a hundredweight on April 16, which signifies a drop in price since the last market report.

Canola oil demand is dropping due to the sudden closures of restaurants, schools, colleges and other food service establishments. The food service industry is a large consumer of canola oil with 550 million gallons of canola oil used domestically, and has resulted in a large buildup of vegetable oils at the wholesale level.

“Before the COVID-19 outbreak, it was estimated the United States would experience a 6.2 percent compound annual growth rate,” he said, “but things have certainly changed since then.”

In addition, bio-diesel has a potential to drop due to the oil price crash, Coleman noted. The latest data shows that bio-diesel consumes 22 percent, or 150 million gallons, of all canola, which is a significant share of the market.

Another big user of canola is the dairy industry, which uses canola meal as a protein feed source. However, the dairy industry has suffered due to the sharp downturn in milk consumption due to school closings and reduction in food service business. This has caused some destruction in the canola meal market.

On what was thought to be a positive note, there was some indication that China was going to overlook the affair with Canada over the electronics official that was arrested in Canada over a year ago, and open up their market to Canadian canola again.

“That has turned out to not be the case,” Coleman noted. “They thought the Chinese would open up the market to more Canadian canola, which didn’t happen and they thought the dockage requirements would be relaxed and go back to 2.5 percent allowed instead of current 1.0 percent figure, but that didn’t happen either. Instead, the story was China was basically dictating this is the way it is going to be – there was no negotiation and that has led to a lot of frustration in the Canadian canola market.

“There is a lot of negative factors in the market right now, and that is what we are dealing with,” Coleman concluded.

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