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“Canola is Canada’s number one oilseed crop, with average Canadian production of about 20 million tonnes compared to 6.5 million tonnes of soybeans,” says Neil Blue, provincial crops market analyst with the Alberta government.
Canola contains about 42% oil and 58% meal. Both canola products are known for high quality and have well-established markets. Canola meal is valued mainly as an animal protein feed, competitive with alternative protein sources such as soybean meal. Canola oil is known for its attractive characteristics for human consumption and is increasingly being used in the production of biodiesel.
Annual world vegetable oil production is near 210 million tonnes. Of that total, annual world rapeseed oil production, including canola oil, is estimated at 31 million tonnes. Soybean oil comprises about 60 million tonnes of the world total. The largest volume vegetable oil is palm oil at 77 million tonnes. The largest palm oil producers and exporters are Indonesia and Malaysia, with those 2 countries producing 90% of the global total.
Palm oil is used for cooking, food products, detergents, cosmetics and increasingly so for biofuel. Palm oil production per acre is high, one reason that it is usually the lowest priced vegetable oil. Although palm oil has many positive attributes, a negative is that about half of its fat content is saturated.
“In a competitive world market, lower price can outweigh other characteristics of a product,” explains Blue. “Although canola is shown as priced in Canadian dollars and palm oil in U.S. dollars per tonne, the message from the chart below is that the price of a competing vegetable oil like palm oil is correlated to the price of canola. There are times like last fall when canola seed had relative price strength, but overall, the price correlation has been high during the past year.”
Chart 1. Canola Price vs. Palm Oil Price
The sharp move lower of canola prices in March 2023 coincided with a drop in palm oil prices, soybean oil prices and other large volume vegetable oil prices.
“Crude oil prices also dropped during that period, evidence of the increasing connection of vegetable oil to the fuel industry,” says Blue. “Such price correlation among vegetable oils is a reminder that the Canadian canola market is not isolated and is subject to price action of competing products across the world.”
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