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Canola

Canola. Cathy Guo Iris Han Mihaela Mardare Mark Liew. Presentation Outline . 1. Introduction 2 . Market O verview 3 . Policy Impacts and Case Studies 4 . Conclusions. Introduction. What is Canola History of Canola Canada’s Trademark Canola Oil – Health Benefits and Dangers

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Canola

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  1. Canola Cathy Guo Iris HanMihaela Mardare Mark Liew

  2. Presentation Outline 1. Introduction 2. Market Overview 3. Policy Impacts and Case Studies 4. Conclusions

  3. 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

  4. 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

  5. History (I) 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 power • High demand - World War II critical shortage • Canada began to expand its limited rapeseed production • After the war - demand declined sharply • Farmers look for other uses for rapeseed and rapeseed oil

  6. History (II) 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

  7. Canola = Canada’s trademark • Originally Canola was bred naturally from rapeseedat 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

  8. Canola Oil Nutrition Facts Canola oil nutrition facts and safety has become a controversial issue with no definite answer.  • 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

  9. Dangers of Canola Oil Side effects: • derived from a hybridized, genetically modified rapeseed plant • contains erucic acid -> cause heart damage and produce free radicals • presence of trans fats in canola oil -> have an increased risk for cancer and heart disease • it has been shown to cause lung cancer(Wall Street Journal: 6/7/95) • manufacturing process: • involves the use of solvents that have adverse effects on human health • can alter the content of omega-3 fatty acids => extra virgin / cold pressed canola oil is recommended http://www.pristinegourmet.com

  10. Canola Supply Chain Retail: $3.82 /1.42L $2,920 / MT Amazon.com Wholesale: $1303/mt Farm: $645/mt USDA Oil crop yearbook (2011)

  11. Oil/Meal Share (Canola vs Soy) Crush Me for Oil Crush Me for Protein Based on Chicago prices for soybeans and Vancouver FOB prices for Canola

  12. Historical Oil Share (Canola vs Soy) Up to 20% variance in oil share historically

  13. 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

  14. 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. 2000: 14mil MT 2012: 24 mil MT http://www.fas.usda.gov/oilseeds

  15. Rapeseed World Supply and Demand – 2011 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

  16. Rapeseed World Trade Viewed by Countries - 2011 Total rapeseed product = (seed + meal + oil) Fairly thinly traded Traded Quantity = 12.5 / 60.5 = 20.7% Data source :USDA

  17. Export Map-2011

  18. Import Map-2011 Canada Ukraine Australia

  19. What? Canada doesn’t have the highest yield? Because of the harsh winter, Canada grows Spring Canola, while EU and China grow Winter Canola. Winter Canola has higher yields because it flowers at a more optimal temperature and season than Spring Canola (summer) In decreasing order of production

  20. Productivity Gains – Fertilizer and Genetics

  21. 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)

  22. Canola Price Trends (Canada vs Europe) High degree of freedom of trade between EU and Canada. EU banned Canola for food, still uses for Biofuel

  23. World Policies/Case Studies • North America • Price Trends (Substitution) • Trade Flows (LOOP) • GM Market Power • European Union • Biofuel regulation and its impact on markets • Seasonality and Blending Economics • China (中国) • Price Stabilization Policies • Protectionism

  24. North America: Home of GMO Crops

  25. Canola Price Trends (vs Soybeans)

  26. 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

  27. Yields across the Prairies

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

  29. 90% 90% of Canadian Canola is exported out of Vancouver to Japan, China and Mexico. The other 10% goes to the USA and east of from Ontario to the EU

  30. Market Power in N America Retail: $3.82 /1.42L $2,920 / MT Amazon.com The ABCD of Oils & Grains Processing and Trading A – ADM B – Bunge C – Cargill D – Dreyfus (Louis Dreyfus) Wholesale: $1303/mt Monopolistic profits in mid-downstream sector here Farm: $645/mt USDA Oil crop yearbook (2011)

  31. 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

  32. EU: Biofuel Policies

  33. Biofuel Mandates in the EU EU Biofuel Consumption

  34. Biodiesel Share of Vegetable Oil Demand

  35. Biodiesel Share of Rapeseed Oil Demand

  36. Rapeseed Oil vs ICE Gasoil (Diesel) EU commissions biofuel as part of energy policy

  37. Correlations in price movements Pre vs Post-biofuel legislation

  38. Canola and Wheatproduction substitutes

  39. Rapeseed Oil vs GO and Wheat (Fuel) (Food) Prices: RSO: FOB Rotterdam GO : ICE GasoilWheat: Milling Wheat – EU origin

  40. Biodiesel affects Wheat Prices through RSO

  41. Crushing Capacity Squeeze Sources: Rapeseed Oil Price: Fob Rotterdam, source : bloomberg Rapeseed Price: Euronext futures, Fob France/Germany/Belgium

  42. Biodiesel Demand Creates Blending Opportunities

  43. In Summary, EU Biofuel Policy is about Energy Security Greenhouse Emissions Europe Crude Oil Production

  44. 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

  45. COFCO(SOE) makes contribution to Price 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 Policies Using a private SOE to purchase agri products instead of a direct Government purchase

  46. Oilseed Processing: Oligopoly 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 isa subsidiary of SG-listed Wilmar Group has the lion’s share of the processing market at 45% Market Share of Oilseed Processing

  47. 1. Price Stabilization Price Floor and Subsidies Price Floor and Subsidies: China China farmer subsidy Freight and 9% import tariff S S-s ES Sa CIF China: $730/mt FOB Vancouver: $600/mt P1 ED Db Da Q1 D’ ED’ Exporter (in $ terms) Importer-China World Mkt • 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 tradeand world prices

  48. 1.Price Stabilization Biofuel Production Control COFCO controls the biofuel production strictly under regulation of the government

  49. 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

  50. 1. Price Stabilization Adjusting Consuming Quantities S S P Pnew Pnew P ↙ D 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 Dnew ↗ Dnew D 2010 2011

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