Canola

Cathy GuoIris Han

Mihaela MardareMark Liew

Presentation Outline

1. Introduction

2. Market Overview

3. Policy Impacts and Case Studies

4. Conclusions

Introduction

• What is Canola

• History of Canola

• Canada’s Trademark

• Canola Oil – Health Benefits and Dangers

• Canola Supply Chain

• Canola Oil/Meal Share vs Soybeans; over time

What is CANOLA?

Canola was developed through conventional plant breeding from rapeseed, an oilseed plant already used in ancient civilization as a fuel. Canola refers to a cultivar of either • Rapeseed (Brassica napus L.) or • Field Mustard (Brassica campestris L. or Brassica Rapa var.)

Its seeds are used to produce: - edible oil for human and livestock consumption - biodiesel

http://www.oilmillplant.com/canola-oil-processing-unit.html

http://www.fusionrenewables.com/products-services/biodiesel/types/

Hundreds of years ago, rapeseed oil was used: in Asia and Europe as a fuel in lamps in China and India as natural (unrefined) oil

Limited use until the development of steam powerHigh demand - World War II critical shortage Canada began to expand its limited rapeseed productionAfter the war - demand declined sharply Farmers look for other uses for rapeseed and rapeseed oil

History (I)

In 1956 - rapeseed oil extracts were first put on the market as food products but suffered from unacceptable characteristics:– disagreeable taste – greenish colour (due to the presence of chlorophyll)– high concentration of erucic acid (considered to cause heart damage)– not appealing to livestock (sharp-tasting compounds)

http://wallpapertube.com/photography/rapeseed-field-by-daniel-schwen-wallpaper

History (II)

Canola = Canada’s trademark

• Originally Canola was bred naturally from rapeseed at the University of Manitoba, Canada in the early 1970s,

=> different nutritional profile much less erucic acid

• Name "CANOLA" <= "CANadian Oil, Low Acid" in 1978• In Canada, an official definition of canola is codified in Canadian law

• 1998 is developed the most disease and drought resistant Canola variety (using genetic engineering)

• In 2011 -> 96% of canola crop grown in Canada was genetically modified

Canola Oil Nutrition Facts

• Health benefits: contain some essential fatty acids - have beneficial effects on

the heart and cardiovascular system significant amount of omega-3 and omega-6 fatty acids – may

increase the level of good HDL cholesterol in the body improve immune functions and promote brain health contain a small quantity of saturated fats

=> is considered as a superior oil than many other commonly used cooking oils

http://www.doctorinmyhome.com/2010/07/canola-oil-nutrition-facts/

http://pacificcoastcanola.com/canola_demand.php

Canola oil nutrition facts and safety has become a controversial issue with no definite answer. 

Dangers of Canola OilSide effects:

x derived from a hybridized, genetically modified rapeseed plant

x contains erucic acid -> cause heart damage and produce free radicals

x presence of trans fats in canola oil -> have an increased risk for cancer and heart disease

x it has been shown to cause lung cancer (Wall Street Journal: 6/7/95)

x manufacturing process:

involves the use of solvents that have adverse effects on human health

can alter the content of omega-3 fatty acids

http://www.pristinegourmet.com

=> extra virgin / cold pressed canola oil is recommended

Retail: $3.82 /1.42L$2,920 / MT

Farm: $645/mt

Wholesale: $1303/mt

USDA Oil crop yearbook (2011)

Amazon.com

Canola Supply Chain

Rapeseed

Oil

FoodNon-Food

Industrial Biodiesel

Meal

Feedstock

Oil/Meal Share (Canola vs Soy)

Soybeans Canola0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%Oil/Meal Share by Weight

Waste

Meal

Oil

But25% less protein

than Soy protein

78%

18%

60%

40%

Soybeans Canola$0

$100

$200

$300

$400

$500

$600

$700

Oil/Meal Share by Value

Meal

Oil

36%

76%

64%

24%

Based on Chicago prices for soybeans and Vancouver FOB prices for Canola

Crush Me for Oil

Crush Me for Protein

Historical Oil Share (Canola vs Soy)

19841986

19881990

19921994

19961998

20002002

20042006

20082010

30%

40%

50%

60%

70%

80%

90%

Oil Share of Total Seed Value

Canola Oil Share

Soybean Oil Share

Canola: FOB Van-couverSoybean: FOB Chicago

Up to 20% variance in

oil share historically

Market Overview

• Global Vegetable Oil Production, Rapeseed Share

• Yields across the World; over time

• World Production and Consumption (S&D)

• World Trade - Major players

• Canola Major Markets

• Canola Price Trends

1999

2001

2003

2005

2007

2009

2011

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

50.00

Top 3 Vegetable Oils World Supply

Rapeseed Oil

Palm OilSoybean Oil

Million Metric Tons

Vegetable Oil Production

After soybean and palm, rapeseed and canola together have become the third leading source of vegetable oil in the world in the last two decades.

http://www.fas.usda.gov/oilseeds

2000: 14 mil MT 2012: 24 mil MT

Note: Domestic supply = ending stock of last season + production of this season. Thus we use production data here not the supply data.

Data source :USDA

Rapeseed World Supply and Demand – 2011

Producers

Country Mil MT Percentage

EU-27 18.8 31.1%

Canada 14.5 23.9%

China 13.4 22.2%

India 6.5 10.7%

Australia 2.8 4.7%

World 60.5 CR5: 92.6%

Consumers

Country Mil MT Percentag

e

EU-27 22.5 35.4%

China 16.7 26.2%

Canada 7.3 11.5%

India 6.9 10.8%

Japan 2.4 3.7%

World 63.5 CR5:

87.9%　

Rapeseed World Trade Viewed by Countries - 2011

Export

Country Mil MT percentage

Canada 8.7 69.7%

Australia 1.5 12.3%

Ukraine 0.8 6.2%

USA 0.2 1.9%

EU-27 0.1 1.0%

World 12.5 CR5:

91.1% 　

Import

Country Mil MT percentage

EU-27 3.6 28.1%

China 2.6 20.6%

Japan 2.4 18.5%

USA 1.4 11.2%

Mexico 1.4 11.0%

World 12.7 CR5: 89.4%

Total rapeseed product = (seed + meal + oil)

Fairly thinly tradedTraded Quantity = 12.5 / 60.5 = 20.7%

Data source :USDA

Ukraine

USA

EU-27

Export Map-2011

Canada

Australia

Import Map-2011

EU-27Canada

USAJapan

Mexico

Australia

Ukraine

EU-2731%

China23%

Japan20%

USA12%

Mexico12%

China

What? Canada doesn’t have the highest yield?

EU-27

CanadaChina

India

France

Germany

Australia UK

Poland

Ukraine

Czech

Rep.

Russia

RomaniaUSA

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5Rapeseed Yield (Mt/Ha) 2011

In decreasing order of production

Productivity Gains – Fertilizer and Genetics

19611964

19671970

19731976

19791982

19851988

19911994

19972000

20032006

2009 -

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

Rapeseed Yield (mt/ha)

Germany

France

Canada

China

India

Markets for canola

Futures markets:

In North America, canola is traded on ICE Futures Canada (formerly Winnipeg Commodity Exchange)

In Europe, rapeseed is traded on the Euronext-Liffe exchange (now NYX)

In China, rapeseed Oil is traded on Zhengzhou Commod Exchange (ZZCE)

Physical OTC Markets:

FOB Vancouver (Seed/Oil/ Meal)FOB Rotterdam (Oil)

Canola Price Trends (Canada vs Europe)

Jan-82

Mar-83

May-84Jul-8

5

Sep-86

Nov-87

Jan-89

Mar-90

May-91Jul-9

2

Sep-93

Nov-94

Jan-96

Mar-97

May-98Jul-9

9

Sep-00

Nov-01

Jan-03

Mar-04

May-05Jul-0

6

Sep-07

Nov-08

Jan-10

Mar-11

May-12

0

100

200

300

400

500

600

700

800

Canola futures - ICE (Canada)

Rapeseed Futures (Europe)

USD/mt

World Policies/Case Studies

1. North America

– Price Trends (Substitution)

– Trade Flows (LOOP)

– GM Market Power

2. European Union

– Biofuel regulation and its impact on markets

– Seasonality and Blending Economics

3. China ( 中国 )

– Price Stabilization Policies

– Protectionism

North America: Home of GMO Crops

Canola Price Trends (vs Soybeans)

Jan-82

May-83

Sep-84

Jan-86

May-87

Sep-88

Jan-90

May-91

Sep-92

Jan-94

May-95

Sep-96

Jan-98

May-99

Sep-00

Jan-02

May-03

Sep-04

Jan-06

May-07

Sep-08

Jan-10

May-11

Sep-12

0

100

200

300

400

500

600

700

800

Canola futures - ICE (Canada)

Soybean Futures (Chicago)

USD/mt

North America Growing Regions

Canada: 99% of canola crop is grown in Alberta, Saskatchewan, Manitoba and BC (peace river)

USA: 90% of the canola crop is grown in North Dakota.

http://www.canolacouncil.org/markets-stats/industry-overview

Yields across the Prairies

Where is the crop going? (Law of One Price)

90%

Market Power in N America

The ABCD of Oils & Grains Processing and Trading

A – ADMB – BungeC – CargillD – Dreyfus (Louis Dreyfus)

Retail: $3.82 /1.42L$2,920 / MT

Farm: $645/mt

Wholesale: $1303/mt

USDA Oil crop yearbook (2011)

Amazon.com

Banning GM Foods

Several countries have banned GMO foods including GM Canola, including: • Several European countries (led by Germany)• Japan• Australia• New Zealand

Price difference between Natural Canola and GM Canola

Australia : Natural Canola trades at ~ 6% premium to GM

Europe : No mention of this => Biofuel Policy is key

EU: Biofuel Policies

Biofuel Mandates in the EU

EU Biofuel ConsumptionBlend Quota 2011

France 7%Germany 6.25%

Italy 4%

Spain 7%

UK 4%

1999

2001

2003

2005

2007

2009

2011

0

20

40

60

80

100

120

140

160

0.0%

200.0%

400.0%

600.0%

800.0%

1000.0%

1200.0%Biofuel %

World Oil Production

World Biofuel

Mil MT Biodiesel Share (%)

Biodiesel Share of Vegetable Oil Demand

1999 2001 2003 2005 2007 2009 20110

5

10

15

20

25

0%

200%

400%

600%

800%

1000%

1200%

Biofuel % Rapeseed Oil Production

Biofuel

Mil MT Biodiesel Share (%)

Biodiesel Share of Rapeseed Oil Demand

Rapeseed Oil vs ICE Gasoil (Diesel)

Mar-99

Nov-99Jul-0

0

Mar-01

Nov-01Jul-0

2

Mar-03

Nov-03Jul-0

4

Mar-05

Nov-05Jul-0

6

Mar-07

Nov-07Jul-0

8

Mar-09

Nov-09Jul-1

0

Mar-11

Nov-11Jul-1

20

200

400

600

800

1000

1200

1400

Rapeseed Oil

Gasoil (Diesel)

EUR/MT

EU commissions biofuel as part of energy policy

Correlations in price movements Pre vs Post-biofuel legislation

5.60 5.80 6.00 6.20 6.40 6.60 4.50

5.00

5.50

6.00

6.50

R² = 0.169771121596928

Ln(Rapeseed Oil) vs Ln(Gasoil (Diesel)) 1999-2004

Ln (Gasoil)

Ln (RPO)

6.00 6.20 6.40 6.60 6.80 7.00 7.20 5.50

6.00

6.50

7.00

7.50

R² = 0.80346372363047

Ln (RSO) vs Ln (GO) 2005-2011

Ln (GO)

Ln (RPO)

Canola and Wheatproduction substitutes

Rapeseed Oil vs GO and Wheat(Fuel) (Food)

6.00 6.20 6.40 6.60 6.80 7.00 7.20 6.00

6.20

6.40

6.60

6.80

7.00

7.20

R² = 0.91427527467778

Ln (RSO) = 0.40ln(GO) + 0.385ln(Wheat) +2.0

Observed

Regression Predicted

Jan 05 - Oct 12Daily data

Prices: RSO: FOB RotterdamGO : ICE GasoilWheat: Milling Wheat – EU origin

Biodiesel affects Wheat Prices through RSO

Mar-99

Nov-99Jul-0

0

Mar-01

Nov-01Jul-0

2

Mar-03

Nov-03Jul-0

4

Mar-05

Nov-05Jul-0

6

Mar-07

Nov-07Jul-0

8

Mar-09

Nov-09Jul-1

0

Mar-11

Nov-11Jul-1

20

200

400

600

800

1000

1200

1400

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

Rapeseed OilGasoil (Diesel)Wheat

EUR/MT Oils Wheat EUR/MT

Crushing Capacity Squeeze

Mar-99

Nov-99Jul-0

0

Mar-01

Nov-01Jul-0

2

Mar-03

Nov-03Jul-0

4

Mar-05

Nov-05Jul-0

6

Mar-07

Nov-07Jul-0

8

Mar-09

Nov-09Jul-1

0

Mar-11

Nov-11Jul-1

250%

60%

70%

80%

90%

100%

110%

120%

Oil share of Value of Rapeseed: Rotterdam

New Biofuel regulation creates short term squeeze in crushing capacity, rapeseed oil value exceeded 100% of rapeseed price for several months

Sources: Rapeseed Oil Price: Fob Rotterdam, source : bloombergRapeseed Price: Euronext futures, Fob France/Germany/Belgium

Biodiesel Demand Creates Blending Opportunities

JAN FEB MAR

APR

MAY

JUN JUL AUG

SEP OCT

NOV

DEC

-200.0

0.0

200.0

400.0

600.0

800.0

1000.0

-25.0

-5.0

15.0

35.0

55.0

75.0

95.0

115.0

2010 Estimate of ME Demand: Europe Biofuels RME (-14)SME (-4)PME(15)Min Temperature

(000s) mt

In Summary, EU Biofuel Policy is about

Greenhouse Emissions

Energy Security

Europe Crude Oil Production

China

“So an army perishes if it has no equipment, it perishes if it has no food, and it perishes if it has no money.” – Sun Tzu, Art of War

“To the ruler, the people are heaven; to the people, food is heaven”王者以民为天，而民以食为天 - Book of Han

“An army marches on its stomach” “C'est la soupe qui fait le soldat” – Napoleon Bonaparte

COFCO(SOE) makes contribution toPrice stabilization

Price Floor and Farm Subsidies Restricting Biofuel production Adjusting consuming quantity

Domestic industry protection Purchase from farmers at higher price than PW

Restrict import quantity

China PoliciesUsing a private SOE to purchase agri products instead

of a direct Government purchase

COFCO (SOE): • the largest domestic company involved in purchasing from farmers, processing, marketing,

bio-fuel production in China• controlling shareholder is the country

China Agri-Oil Holdings Limited (CAIHL) is the subsidiary of COFCO, responsible for oilseed processing, biofuel and beer production 30% of market share in oilseed processing

Kerry Oils & Grains is a subsidiary of SG-listed Wilmar Group has the lion’s share of the processing market at 45%

Oilseed Processing: Oligopoly

45%

30%

25%Kerry Oils & Grains

China Agri-oil Holdings Limited

Others

Market Share of

Oilseed Processing

COFCO supports domestic Rapeseed farmers with a planting subsidy (CNY150/ha) with a guaranteed floor price (2011:730$/mt)

This has led to a ~$600 Canadian export price (FOB Vancouver) The $130 difference can be accounted for by freight and 9% import tariff in China

In 2011, COFCO purchased a grand 69% of the summer harvest (4 mil MT)

The Chinese Government’s buying decisions (both price and quantity) have important feedback effects on trade and world prices

Sa

Da

ES

Db

EDP1

Exporter (in $ terms)

Importer-ChinaWorld Mkt

Q1 D’

Price Floor and Subsidies: China

S

S-s

China farmer subsidy

1. Price Stabilization Price Floor and Subsidies

CIF China: $730/mt

ED’

FOB Vancouver: $600/mt

Freight and 9% import tariff

COFCO controls the biofuel production strictly under regulation of the government

1.Price Stabilization Biofuel Production Control

•

Regardless of the increasing consumption, COFCO controls the process of biofuel oil.

• It suppresses price by suppressing the demand of bio-fuel of canola, due to protection of food security and domestic price.

• 341 million liter=0.3million MT• The total oil from canola is 40%* total production in 2012=5.2 million MT

1. Price Stabilization Biofuel Production Control

COFCO controls the process of oil production of canola: => decreasing the production of oil when the market price of canola seeds is high => consuming a lot when the price is low (demand curve shift)

In 2010, price was predicted to fall => purchasing amount was 5 million tonsIn 2011,price was predicted to increase => purchasing amount was 2 million tons

S

Dnew

D

Pnew

P

S

Dnew

D

Pnew

P

↗↙

1. Price Stabilization Adjusting Consuming

Quantities

2010 2011

Restricting imports as part of price controls

In 2012, COFCO: • purchased 4,000,000 MT, • equivalent to 69% of the annual domestic production • imported only 700,000 MT• equivalent to 38% of total imports (even though the world price is much lower than the domestic price)

2. Domestic Industry Protection Restrict Import Quantity

Protection of Domestic Industries

Sa

Da

ES

Db

S-s

EDP1

Importer-ChinaWorld Market

Q

D’

CIF China: $730/mt

FOB Vancouver: $600/mt

S

ED-new

Freight and 9% import tariff

China farmer subsidy

2. Domestic Industry Protection Purchase From Farmers at higher price

Q

• COFCO purchases canola seeds from farmer at $730/mt

-> $130/mt higher than the world market price.

-> part of this $130 is due to the 9% tariff on Rapeseed imports

• Protects farmers’ benefits, in case of suffering from price volatility

CONCLUSIONS

Conclusions

America

Europe

China

Profit

Energy

Food

Largest Producer ≠ Highest Yield

FOOD FUEL