Canadian canola crushers are drifting into the doldrums.
“The crushing industry is absolutely alarmed,” said Canadian Oilseeds Processors Association executive director Robert Broeska.
“Even before we have the short crop in hand, and we have supplies in hand (now), we’ve got two plants in Western Canada shut down.”
Statistics Canada’s spring seeding intentions report said farmers intend to plant 23 percent fewer canola acres. That is due to the poor price canola has been receiving and dry soil in western Saskatchewan and Alberta.
Since the report, the weather has continued dry in Saskatchewan and Alberta. Canola is a small seed and must be planted near the surface in moist soil.
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As seeding progresses, every rainless day strengthens the idea that canola acres will fall far short of average, analysts say.
Producers who harvest a crop are likely to get higher prices. But for crushers, it means there will likely be less canola seed coming their way.
Presently, the Archer Daniels Midland crusher in Lloydminster and the Cargill plant in Clavet, Sask., are closed. Crush margins have been poor.
“That doesn’t bode well for a season in which we’ll have even shorter supplies,” said Broeska.
More than half of Canada’s canola is exported as seed.
If stocks fall short, as expected, a higher proportion of seed may flow offshore.
That’s because many foreign countries and some of Canada’s biggest customers prop up their own crushing industries by discriminating against imports of oil.
Those protected crushers can often afford to pay more for supply since their margins are not as thin.
The more of next year’s seed they suck up, the less there is for domestic crushers.
It’s a depressing outlook for Canadian crushers, many of whom have invested large amounts of money in facilities.
Both of the closed crushing plants have had millions of dollars poured into them in recent years but are not able to run at full capacity.
“These guys are putting some big commitments into them and they’re just not seeing the return,” said Broeska.
Crushers don’t know how to change the short-term situation.
“What can you do?” asked Broeska.
The industry hopes Canadian trade negotiators can knock down some of the protective walls that shield offshore competitors. But Broeska said changing international trade rules doesn’t happen quickly.
The forecast of short supplies is also frustrating for Canadian crushers that had hoped to sell to China.
The Asian country lifted restrictions on canola oil imports to help get accepted into the World Trade Organization.
“If we don’t have a crush margin and we don’t have the seed, then we’re not going to take a lot of advantage of that,” said Broeska.
