By Rod Nickel
WINNIPEG, Manitoba (Reuters) - Canadian exporters and Chinese crushers are both on the hook for the costs of any canola shipments that are refused after China's tough new standards take effect on Sunday, industry experts said on Friday.
Chinese crushers have booked an estimated 1.2 million tons of new-crop Canadian canola sales, some of which will not be completed before Sunday. That's when China will restrict Canadian shipments of canola with commonly found blackleg disease to ports away from rapeseed growing areas to satisfy China's concern of contamination in its domestic crop.
That move will shut Canadian canola out of its most often used ports and reduce Canada's canola sales to China by 70 percent, according to the Canola Council of Canada.
Canadian exporters' canola sales to China are a mix of freight-on-board shipments, which place the risk of refused delivery with the buyer, and cost-and-freight shipments, which leave any delivery problems with the exporter, said Dave Hickling, vice-president of utilization for the Canola Council of Canada.
"Contractual (details) are going to vary so much by exporter that everyone will have a different level of risk and different level of loss," Hickling said.
Canada is the world's top exporter of canola, which is crushed for its oil to be used in vegetable oil and for its meal, to be used in livestock feed. China was its top canola market last year, buying 2.87 million tons last year.
Canola shipments to China are roughly a half-and-half mix of freight-on-board and cost-and-freight shipments, similar to soybean exports, said Charlie Sernatinger, an analyst with Fortis Clearing Americas in Chicago.
"If you sell (cost-and-freight), then you've got the freight risk, which is massive," Sernatinger said. With those shipments, exporters are liable for not only the shipping costs, but also demurrage -- the charges for delays.
A Canadian canola industry source said about 300,000 to 400,000 tons of canola ordered for November through January delivery in China will be in limbo after Sunday.
Major Canadian canola seed exporters include Archer Daniels Midland , Cargill and Viterra .
All things considered, canola's supply-demand fundamentals aren't as bad as some think, Hickling said. The Canadian crop will be smaller this year and two new crushing plants are nearing completion near Yorkton, Saskatchewan.
China's loss stings, but its canola buying has historically been unpredictable. Exports could still total 5.5 million-6 million tons, Hickling said. That would be a sharp drop-off from last year's record 7.3 million tons but in line with the three preceding years.
Blackleg, a disease caused by a fungus that can kill the canola plant but poses no health risk to humans, is commonly found on canola seed. It is not a major threat to Canadian crops because of resistant crop varieties.
ICE Canada January canola futures gained value late this week, causing some traders to speculate that exporters were pricing sales to hurry them through before the deadline.
In the longer term, though, losing China can only hurt, one futures trader said.
"It's still a dark cloud over the market."
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