Pacific Coast Canola | A biodiesel contract is making it worthwhile to truck canola from Canada
Canadian canola growers frustrated by their inability to move crops may find a relief valve south of the border.
“We want people to realize that we’re here, we’re buying, we’re moving seed,” said Joel Horn, president of Legumex Walker Inc., a Canadian company operating a new crushing facility in Warden, Washington.
Pacific Coast Canola began production in January 2013, but was forced to change its business model this year because of rail congestion.
The problems began with outbound shipments of oil and meal. The company couldn’t get the rail car capacity it required to supply its customers.
In response, Pacific Coast Canola signed a six-month agreement to supply Imperium Renewables with super degummed canola oil by truck. Imperium is a biodiesel manufacturer located within 500 kilometres of Pacific Coast Canola.
Horn said Pacific Coast’s crush facility has 360,000 tonnes of annual capacity and was built to service the food industry.
However, circumstances necessitated a change in philosophy, and improved biodiesel economics allowed it to happen.
“The prices that the biodiesel guys are willing to spend has gone up quite a bit,” he said in an interview following a conference call about the company’s 2013 fourth quarter results.
“I mean, that market is strong and so they’re willing to pay a lot of money for it.”
The agreement to truck oil to a nearby buyer fixed the outbound logistics, but North American rail congestion then started affecting inbound delivery of seed from the Canadian Prairies and North Dakota.
Pacific Coast Canola receives three-quarters of its canola seed by rail. The remainder is trucked from growers in the U.S. Pacific Northwest.
Disrupted rail service caused the plant to operate well below capacity during the first full quarter of commercial production.
It crushed 51,900 tonnes of seed during the fourth quarter, which is 56 percent of operating capacity. It wasn’t quite able to break even at that rate.
“The only thing holding us back from running at full production levels is the inability to get enough seed to our plant,” said Horn.
The company responded by ex-panding its trucking program beyond the Pacific Northwest into North Dakota and the Canadian Prairies.
“We can be a relief valve for the farmer in Western Canada to be able to bring canola down to our plant,” said Horn.“We’ve become a place that they can move (canola) to. Instead of moving it east or west, they can move it south.”
It wouldn’t previously have been economical to truck canola from Canada, but crush margins are at historical highs.
“We can pay the current market price for seed in southern Alberta.”
It is a one-day run to send a truck to southern Alberta, load it with canola and drop it off at the plant in Warden. Pacific Coast Canola is willing to buy all types of canola, including non-GM and high oleic.
The company hopes the additional supply will help its facility approach full production in the second quarter of 2014.
First quarter production was comparable to the 56 percent capacity in the fourth quarter of 2013.
Horn said the company needs enough supply to last until crops are harvested in the Pacific Northwest in July and August. The U.S. crops should provide most of the supply required for the third and fourth quarters.
Legumex Walker posted losses before interest, taxes, depreciation and amortization of $1.8 million in 2013, compared to positive EBITDA of $1.4 million in 2012.
A $15.6 million profit in the specials crops business was offset by a $10.2 million loss in oilseed processing and $7.1 million in corporate costs.
Horn said the company would have added $9.4 million to EBITDA if it had eliminated the losses in the oilseed processing sector caused by costs associated with commissioning and the initial commercialization of the plant during the first three quarters.
He said those extra costs are behind it now.
“It’s important for folks when they’re looking at our stock to understand we’re a whole different company now.”