Supply & demand outlook for the canola industry

Supply & demand outlook for the canola industry J.P. Gervais Chief Ag Economist March 2015 @jpgervais

Canola

Canola is one component of the environment for oil producing crops

Growth in demand has supported the growth of oil producing crops million tonnes Stocks Stocks to Use 120 20% 18% 100 16% 80 14% 12% 60 10% 8% 40 6% 20 4% 2% 0 2000/2001 2002/2003 2004/2005 2006/2007 2008/2009 2010/2011 2012/2013 2014/2015 Source: USDA / FAS 0% stock to use

Soybeans drive oilseed markets 350,000 Canola Palm Soybeans 300,000 thousand tonnes 250,000 200,000 150,000 100,000 50,000 0 2000/01 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15 Source: USDA/FAS

World soybean production 2014/15 United States 34% All other 5% Argentina 18% Canada 2% China 4% Ukraine 1% Paraguay 3% Source: USDA-FAS India 3% Brazil 30%

Larger than expected South American soybean crop

Lots of soybeans coming to market 35% 30% 25% 20% 15% 10% 5% U.S. World Stocks-to-use ratio Projections 0% 91/92 95/96 99/00 03/04 07/08 11/12 15/16 Source: USDA-WASDE, USDA outlook

Some downside risk exists for soybeans $16.00 U.S. Soy Price vs Stock-to-use Price $/bu $14.00 $12.00 $10.00 $8.00 '13/14 '08/09 '09/10 '12/13 '11/12 '10/11 '07/08 '14/15 '15/16 $6.00 $4.00 $2.00 0% 5% 10% 15% 20% Stock-to-use Source: USDA-WASDE, USDA outlook

Soybean forecasts differ - only way to reconcile is to have really strong demand USDA Planted acres 83.5 million Markets Planted acres 86.0 million Yield 46 bus/acre Yield 45.2 bus/acre Production 3.82 billion bus. Production 3.86 billion bus. Price $8.50 / bu Price $9.80 / bu (Nov.)

Soybeans is only one of the drivers for canola Canola Soybeans 700 700 600 600 US$ per tonne 500 400 300 200 500 400 300 200 CA$ per tonne 100 100 0 2000 2002 2004 2005 2008 2010 2012 2014 0 Source: USDA, AAFC

Canola is influenced by the oil market

Palm is king in this market 70,000 Canola oil Palm oil Soybean oil 60,000 thousand tonnes 50,000 40,000 30,000 20,000 10,000 0 2000/01 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15 Source: USDA-FAS

World palm production 2014/15 Papua New Guinea 1% Colombia 1% Thailand 3% Ecuador 1% All other 6% Indonesia 53% Malaysia 31% Source: USDA-FAS Nigeria 4%

Weather patterns influence prices

The downward trend in vegetable oil prices is no longer matching trend in stocks 2,000 Palm oil Rapeseed Oil Soybean Oil 1,600 US $ per tonne 1,200 800 400 0 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Source: USDA-FAS

Biodiesel mandates will come under pressure in this low fuel price environment 7 biodiesel return over operating costs soybean oil 70 $ per gallon 6 60 5 50 4 40 3 2 30 1 20 0 10 1/8/2010-1 1/7/2011 1/6/2012 1/4/2013 1/24/2014 1/23/2015 0 CARD Iowa State University cents per pound

Focus on our Canadian canola industry

Our share of world canola production in 2014/15 has gone up India 10% Russia 2% United States Ukraine2% 3% All other 3% Australia 5% Canada 22% European Union 33% China 20% Source: USDA-FAS

Largest rapeseed exporter 2014/15 India 1% 0% European Union 4% China 0% Russia United States Ukraine 1% 14% All other 1% Australia 17% Source: USDA-FAS Canada 62%

World canola oil production 2014/15 Russia 2% United States 3% Japan 4% All other 8% Australia 1% Canada 12% India 9% China 23% Source: USDA-FAS European Union 38%

Largest exporter of canola oil 2014/15 United Arab Emirates 6% Russia 7% Ukraine United States 1% 5% All other 2% Australia 3% European Union 8% Belarus 3% Canada 65% Source: USDA-FAS

Canadian balance sheet for canola has returned to long-run equilibrium Thousand tonnes 20,000 16,000 12,000 8,000 4,000 stocks-to-use Production Exports Crush 30% 25% 20% 15% 10% 5% 0 0% 2000/01 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13 2014/15 Source: Statistics Canada

Market moving sideways before next wave of drivers 700 600 500 CDN$ per tonne 400 300 200 2015 Nov contract 2016 Nov contract 100 0 2010 2011 2012 2013 2014 2015 2016 Source: AAFC, ICE

China has become Canada s largest canola market

Chinese GDP slowing, but does it matter? 15% 13% 11% 9% Current pace 7.4% 7% 5% 2001 2003 2005 2007 2009 2011 2013 2015 Source: World Bank

Middle class will carry more weight in the Chinese economy 16 5 14 very rich Wealthy Middle class Poor 54 56 1$ income -> 40 in food spending 20 25 11 2012 2022 Source: McKinsey

Will China oilseed imports continue to climb? 90,000 coarse grains oilseeds 75,000 60,000 000 MT 45,000 30,000 forecast 15,000 0 1994 1998 2002 2006 2010 2014 2018 2022 Source: OECD / FAO

Projected pace of growth in Chinese imports of meals and oils is impressive 18,000 15,000 Protein meals Vegetable oils 000 MT 12,000 9,000 6,000 3,000 - forecast 2001 2004 2007 2010 2013 2016 2019 2022 Source: OECD / FAO

Can we meet the industry s 10-year targets?

Growth in canola yields seem to have gained speed 60 50 52.0 bushel per acre 40 30 20 10 0 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 Source: Statistics Canada

yet may undershoot target of 52 bu / acre 60 bushel per acre 50 40 30 20 10 52.0 44.1 0 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 Source: Statistics Canada, FCC computation

Acres are on pace to meet target implied by yield target 30 25 million acres 20 15 10 21.9 5 0 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 Source: Statistics Canada, FCC computation

but meeting yield target may not even be a problem million acres 30 25 20 15 10 25.9 21.9 5 0 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016 2021 Source: Statistics Canada, FCC computation

Getting the acres is a matter of relative prices and profit margins 20 Cash costs Total costs Current price ($/bu) 16 $ per bushel 12 8 4 0 Spring Wheat Durum Feed Barley Canola Lentils (lg gr)* Peas (gr) Source: FCC computation

2015 projected growth in acres 20% 16% 12% 8% 4% 0% -4% -8% -12% What does Canadian production plans look like in 2015? AAFC Reuters Canola Durum Wheat Barley Lentils Dry peas Source: Reuters, AAFC

Almost no variability in forecasts for canola 2015 projected growth in acres AAFC Reuters 20% 16% 12% 8% 4% 0% -4% Canola Durum Wheat Barley Lentils Dry peas -8% -12% Source: Reuters, AAFC

Canola still showing good profitability Lower loonie Have oil prices bottomed out? Low interest rates to support investments Growing consumer demand

Consumers rule!

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