Weather Forecast

Close

Business

Brad Paulson, a former canola grower Cavalier County, and now owner of Northern Crops Marketing Ltd. of Grand Forks, N.D., says machinations are causing big problems and unknowns for canola growers. Photo taken June 3, 2019, near Nekoma, N.D. (Forum News Service/Agweek/Mikkel Pates)

Collateral damage: Canola, too, suffers from Chinese geopolitics

NEKOMA,, N.D. — Kevin Waslaski is troubled about the impacts of Chinese and Canadian trade disruptions on the value of canola, perhaps the most important oilseed crop in northern North Dakota and Canada.

Waslaski, 57, farms with two sons and a brother from a headquarters near Langdon, N.D. He is a former regional and national president of canola groups. He figures the trade and political impacts on canola prices have cost a "six-figure sting" for his farm.

Canola was trading at about 17 cents per pound early last winter, but the mid-14 cents range in the last four months. "You're talking $1,500 a truckload in the last four months," Waslaski said of the reduction.

Market meltdown

Barry Coleman, of Bismarck, N.D., is executive director for the Northern Canola Growers, a group that represents about 3,500 growers, mostly North Dakota producers, but also in South Dakota, Minnesota and Montana.

That region produces 1.6 million of the 1.9 million acres grown in the U.S. North Dakota accounts for 80% of the U.S. canola crop. Biggest North Dakota canola counties are Cavalier, Towner, Rolette and Ward counties, as well as Hettinger County. About 95% of U.S. canola is processed locally and sent to domestic markets.

North of the border, Canada has 20 million acres and 30,000 to 40,000 growers, depending on the year. Canada has numerous processing plants, including at Altona, Manitoba.

Conversely, Canada has only 5 million acres of soybeans and the U.S. has 80 million to 90 million acres, depending on the year.

After U.S./China soybean tariff and trade recriminations jeopardized soybean exports to China, some in the canola industry believed Canada might be able to trade more canola to China to make up for decreased soybean trade from the U.S.

But no.

On Dec. 1, 2018, the canola market was rocked when Canadian authorities arrested Meng Wanzhou, chief financial officer for Huawei Technologies Co., in Vancouver, British Columbia. Wanzhou is the daughter of its founder and CEO, Ren Zhengfei. The arrest was at the request of the U.S. government, based on allegations of fraud and dealing with Iran, which would violate U.S. and Europan policy. Wanzhou is awaiting extradition hearings in 2020.

Brad Paulson, a former canola grower in Cavalier County and now owner of Northern Crops Marketing Ltd. of Grand Forks, N.D., says the machinations are causing big problems and unknowns for canola growers.

China initially refused to unload a Canadian canola shipment, ostensibly because it was out of specifications for insects. But traders knew it was due to the political impasse because the rejections continued.

Under typical circumstances, 40% of Canadian canola is exported to China. Coleman says some of that trade likely will move into the U.S. to compete with U.S. production, which is also affected by the stronger U.S. dollar.

In North Dakota, the cash price at the ADM Velva crushing plant for canola dropped from $17.78 per hundredweight, on June 15, 2018, to $14.70 during the week of June 11 this year.

Paulson wonders whether China had some stockpiles of replacement oils. "They've probably got enough for awhile, probably replaced some of that with soybean oil from Argentina or Brazil," he says.

With African swine flu attacking Chinese hog production, however, the Chinese probably have too much meal and not enough oil, he says. There has been some market recovery from weather concerns, but there is a glut of canola in the system that is weakening basis.

Waiting, hoping

There's not much American farmers can do but wait and hope the trade situation with China resolves itself, Paulson says. He thinks Canada has a better chance of resolving that issue with China on canola than the U.S. has to resolve issues over soybean exports.

Most canola yields were good last year. One wild card is a concern over a severe drought in Canada, he says.

Paulson says canola planting went swiftly for farmers near the Canadian border, where conditions were dry.

Farmers have trended toward planting canola later in recent years. The Waslaskis were hoping their crop was growing fast enough to avoid vulnerability to the flea beetle pest.

Paulson knows some farmers who earlier this winter pre-sold 2019 crop canola in the 18 cents to 19 cents per pound range, but that's probably a minority. Some are babysitting the 2018 crop in storage, which are harder to store because of green kernels. "You've got to keep air on it," he says. "It packs so fine and heats really easily.'

Some are hoping for government payments in the Market Facilitation Program for 2019 crops, which they didn't get for the 2018 crop. "It sounds like there's going to be a canola payment, nobody knows what it is" for canola, Paulson says. Coleman says there is speculation a payment scheme may be announced in mid-July, or maybe sooner, but any timing is not certain.

Any payment will help in a time of depressed prices, Paulson says. Some switched out canola for soybeans, in anticipation of an MFP payment.

Waslaski, generally a supporter of the Trump administration, says he wasn't initially surprised that canola producers did not receive an MFP on the 2018 crop, in part because the canola price didn't immediately go down.

"It wasn't impacting the canola right away but it actually hit it harder later," he says.

Waslaski a former president of the NCGA and the U.S. Canola Growers Association, says he believes today's leaders are on the right track. "They're working on it."

randomness