Canola crushers face slowdowns or even shutdowns this summer as the high price of seed and sagging price of oil and meal shred their profits.
Crushers have sales commitments booked until the end of April, said the president of the Canadian Oilseed Processors Association. But right now, they’re asking themselves whether they’ll continue crushing from May to the end of the crop year, said Robert Broeska.
The crop year started off well for crushers, said Broeska.
“Then it sort of tapered into a long sort of descending slope into oblivion, and right now, it’s just absolutely a blood bath.”
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Crushers from Japan, China and Mexico have been strong buyers of canola this year, explained Broeska. These countries protect their crushers with high tariffs on oil to keep out canola oil from Canada and other lower-cost producers.
“It’s kind of mystifying to our industry as to why they’re ramping up their seed purchases this year,” said Broeska.
Meanwhile, Brazil’s large soybean crop means more oil and meal is on the market, putting pressure on prices.
The currency crisis in other Asian markets has closed doors to Canadian canola oil too. And Indonesia is stepping up palm oil production, creating more competition.
“As canola crushers, we’re kind of strapped in the middle here, getting caught from the downside on the products, and the strengthening side on the seed side,” said Broeska.
For the March, May and July canola futures contracts, the board crush margin has been hovering between -$50 and -$60.
“That just doesn’t cover the cost of keeping the plant doors open.”
The board crush number is an index derived from subtracting the canola futures price from the equivalent value of oil and meal, based on Chicago soy futures prices. It measures the trend in returns, not actual returns.
But things start to look better toward the new crop year, said Broeska.
Because canola prices are strong compared to cereal prices, farmers are expected to plant more this spring. The more canola, the better for the crushing industry.
Margins on futures
Board crush margins for the October, November and December futures contract months have been above -$20, he said.
“That’s significantly different,” said Broeska. “Depending on what the seed basis and the oil and meal basis are, I think you could keep the doors open at those prices.”
This is a delicate time for the industry. Crushers don’t want farmers to cut canola acreage based on the short-term situation, said Broeska.
The industry needs more production so it can keep large plants running efficiently.
He said no one in the industry has said yet whether they will shut down their plants this summer.
Representatives from Canamera Foods and Cargill did not return calls.
This spring’s conundrum is different from 18 months ago when some crushers mothballed plants after crushing seed became unprofitable. Those shutdowns were caused by an extreme shortage of seed, said Broeska.
This year, there’s enough canola. Plants have expanded and have been crushing at a strong pace, about 20 percent higher than last year, to date. Much of the current crush commitments were booked three or four months ago, when margins were less bleak, he said.
“It will be an interesting next couple of weeks to see these crush numbers and where they go in reflection of these board margins.”
