Winnipeg, June 22 – Canola crush margins remain in free-fall as canola seed becomes more expensive relative to the value of the oil and meal produced.
“They’re not deteriorating, they’re flat out disintegrating,” said a canola trader, pointing to the $20 per tonne drop over the past week alone. He said crush levels have been lower than they are now only a couple times over the past 14 years.
“Canola is already wildly expensive (compared to product value), but it could get more expensive … if we go through a stretch without rain,” said the trader noting that there are still large areas of Saskatchewan and Alberta that need more moisture.
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The increasing likelihood of a below average canola crop will likely keep canola futures moving higher (and crush margins moving lower) to ration demand.
Crush margins provide an indication of the profitability of the product values relative to the seed cost when processing canola, with exchange rates also factoring in to the equation.
As of June 22, the Canola Board Crush Margin calculated by ICE Futures Canada for the November contract was at about +$38 per tonne. The week before it was closer to $58 and a year ago it was $133.
The actual cash crush is a likely a little more profitable than the futures crush, due to high canola oil premiums, the trader said.
Processors were “not yet losing money, but they’re getting close,” the trader said.
Crushers likely have pre-booked a large portion of their seed requirements at substantially better margins levels than the current numbers would suggest.
However, the question now is how long they can keep going if the margins remain poor.
“They’ll back down to the bare minimum at some point,” said the trader.
Domestic crushers processed 130,383 tonnes of canola during the week ended June 17, which was only 65 percent of capacity and well off the year-to-date average crush capacity utilization of 82 percent.
