The Definitive Guide To Canola As A Commodity For Novices


How and Where Trade Canola
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Why Is Canola Valuable?

Canola is a crop grown primarily for its seeds, which can be crushed to produce canola oil and canola meal.

In the 1960s – 1970s, Canadian scientists created canola by conventionally breeding rapeseed plants. The idea was to eliminate the undesirable properties of rapeseed oil and create a new plant with a better nutritional profile. The term canola is a contraction of ‘Canadian’ and ‘ola.’

Canola oil is one of the most versatile cooking oils and a healthy alternative to oils with higher saturated fat content. Canola meal is a staple in animal feed. These two products make canola an important global commodity.

How Is Canola Produced?

Canola is a member of the Brassica family of crops, which includes kale, broccoli, cabbage, cauliflower, mustard, turnip and radish.

The ideal habitat for growing canola is a grain farm with rainfall zones of between 450 and 700 mm, although newer varieties of the crop have been grown in drier climates. The crop has a similar profile to wheat, and farmers often rotate wheat and canola on their acreage.

Canola crops can be planted in the spring or winter. Spring canola grows in colder norther climates such as the US plains states and Canada. The crop is planted in rows in March and harvested in September or October. The slightly cooler summers in the northern growing regions allow the crop to prosper. Winter canola is planted in September and October and harvested in the spring.

Canola is considered a hardy crop that adapts well to variations in temperatures. As a result, it is grown in a wide variety of geographical regions in the United States, Canada and other regions of the world.

Canadian farmers began planting canola in 1974, and US farmers introduced the crop in 1988.  More than 80% of the canola in the United States is produced in the state of North Dakota.  Other key producing states include Oklahoma, Montana, Washington, Minnesota, Kansa and Idaho.

Canada is the world’s largest single country producer of canola. It produces more than 25% of the global supply of canola and leads the world in exports. The European Union also produces a significant amount of canola.

Where Is Canola From?

Map showing the countries that produce the most canola

Top Canola Producing Countries

RankCountryAnnual Output (in metric tons)
#1Flag of CanadaCanada15,500,000
#2China14,700,000
#3Flag of IndiaIndia7,800,000
#4Germany6,250,000
#5France5,500,000

Canola production has risen sharply since the crop’s introduction. Growing demand for vegetable oils in India and China have contributed to this demand as has growing demand for canola in biofuels. The United States, China, Japan, Mexico and Pakistan are the largest consumers.

Top Uses of Canola

UseDescription
Canola OilIts favorable nutritional profile makes canola a popular choice for sauteing, frying and baking.
Canola MealThe canola meal that remains after oil extraction can be crushed and prepared as animal feed for poultry, pigs and cattle.
Non-food IngredientCanola is used in the follow non-food products: Canola is used in the following non-food products: Biodiesel, Printing inks, Cosmetics, Toothpaste and more.
Images via Wikipedia and Pixabay

What Do Experts Think About Canola?

Canola - what do the experts think?

Experts see both potential risks and pitfalls from trading canola.

“We're definitely optimistic on grains and oilseeds.”

James Cordier, president and head trader of OptionSellers.com

Jim Rogers interviewed on The Street
Jim Rogers discusses commodities on The Street. via YouTube

“I'm still extremely optimistic about agriculture, more so than many sectors of the world economy.”

Jim Rogers, creator of the Rogers International Commodity Index

However, Canadian officials present a more muted outlook for canola. Although the Canadian farm ministry cut its harvest forecast, the country still produces record amounts of canola crops. Improvements in crop strains are the primary reason for this abundance.

“Historically, the hybrid varieties grown across Western Canada proved to be remarkably drought tolerant.”

Canadian Farm Ministry

What Drives the Price of Canola?

  1. Canadian Market
  2. The US Dollar
  3. Emerging Market Demand
  4. Substitution
  5. Biofuel Demand
  6. Health News

Canadian Market

Canada produces the largest share of the global supply of canola, so events in this country can have an important effect on prices.

Extremely cold or warm temperatures can limit crop production. Also, decisions about how to allocate acreage for crop production can impact prices. If farmers believe the price prospects for wheat, for example, are more favorable, then canola production might suffer. This could send prices higher.

The US Dollar

The US currency is the world’s reserve currency. As a result, canola and other commodities are quoted in US dollars. Canola growers receive fewer dollars for their crop when the US currency is strong and more dollars when the currency is weak.

Emerging Market Demand

Emerging market countries such as China, Mexico and Pakistan import significant amounts of canola oil, and consumption has been gradually growing over the years. As these and other emerging economies expand, their demand for agricultural commodities will grow. Increasing wealth will also likely mean increased consumption of meat. Since canola is used to produce livestock feed, this should also boost prices for the commodity.

On the other hand, a global recession or severe emerging market slowdown could limit demand.

Substitution

Oil produced from canola meal competes with many other oil meals including castor, soybean, linseed and cottonseed. The demand for these meals will fluctuate mostly based on price and availability.

Perception about health benefits could also impact the relative demand for different oils and oil meals.

Biofuel Demand

Surging demand for biofuels has contributed strongly to demand for canola.

The European Union has not been able to produce enough canola for its biodiesel needs and imports the crop from Russia and Ukraine. The two countries have ramped up production, but as more consumers turn to biofuels, supply may not be able to keep pace with demand.

Health News

Canola growers tout the many benefits of canola oil consumption including its low saturated fat and high omega fats profile. They call it the world’s healthiest cooking oil.

However, canola oil has its controversies. Some health experts warn that canola oil is really just modified rapeseed oil. Rapeseed oil has traditionally been used for industrial purposes such as in lubricants. It contains harmful substances such as erucic acid, which may cause heart damage.

In addition, around 90% of the global canola crop is genetically modified, and many scientists believe consuming genetically modified products can cause diseases.

As more information becomes known about the positive and negative health effects of canola, consumption patterns may change.

Further Reading

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