Canada is crushing it

In 2021, a slew of major grain & food companies in Canada announced new plans in quick succession for a major expansion of their canola crushing & oil production facilities. The trend began last March with Richardson International declaring its intention to double the capacity of its Yorkton, Saskatchewan plant to 2.2mmtpa, positioning it as the largest crush plant in Canada. This was followed a month later by Viterra releasing plans for a new 2.5mmtpa plant scheduled for completion in 2024, among others.

The common impetus encouraging this intensive capital investment was the intention to meet the feedstock requirements of an expanding renewable diesel industry. USDA research reveals that an additional 2.8 billion litres per annum of Canadian renewable diesel capacity is expected to come online by 2024, totaling 3.7 billion by 2027, 62% of which will utilize solely canola oil, or a cocktail of canola, soy tallow & used cooking oil as feedstock. Animal fat and used cooking oil imports are largely subject to rigid structural and economic or logistical constraints in Canada, in that production volumes are essentially unresponsive to demand, leaving Canola as the key feedstock candidate able to grow in volume for fuel production. Admittedly though, the actual growth trajectory of renewable fuel production in Canada may fall below its forecast path, if some planned projects fail to be executed in practice.

Analysis of the existing design capacity of the 14 canola crush plants in Canada, plus expected completion dates and capability of the committed new facilities and augmentations by the USDA reveals that total canola crush capacity is expected to increase 57% between 2022 and 2027 to 18.7mmt (Figure 1). This represents approximately 93% of Canada’s current annual canola production.

If we make the very broad assumption that the new plants will run at 85% capacity once built, and that Canadian canola production will remain static at 20mtpa, we map out (in theory) the possible impact on Canadian canola export volumes. As crush plant consumption increases between 2023 and 2027, available export volumes reduce by 42% or 3mmtpa under this model. Removal of this volume from international trade would have a supportive influence on canola prices going forward, all else being equal. (follow the trajectory of modelled exports on figure 1)

Complicating the analysis, however, is that the Canadian canola industry is targeting 25% growth in Canola production to 25mmtpa by 2025. Given that this is expected to be achieved primarily out of yield improvements, not area planted, this is an ambitious goal. Figure 2 illustrates a breakdown of the components of yield where improvement is expected to be made, moving from 41bu/acre to 52 bu/acre.

Figure 3 repeats the export modelling exercise, under a scenario of increasing Canadian canola production. Overall, the result is that exports hold relatively steady in their prior range of 9-10mmt, meaning that the impact of the additional crush facilities is relatively neutral. As discussed above, a big increase in canola yield in the next couple of years will be quite a stretch so the exercise is more intellectual to illustrate the concept, rather than a practical scenario.