Canola crop at 13.36 million tonnes | Farmers likely to see competitive bids for canola through the winter
Margins for western Canadian canola crushers are shrinking because of a smaller than expected canola crop, that will end a seven-year streak of annual production records.
According to ICE Futures Canada data, the Canadian Canola Board crush margin is sitting at $65 per tonne above November futures, down from $89 per tonne a week ago and $130 per tonne a month ago.
Charlie Pearson, provincial crops market analyst at Alberta Agriculture, said narrowing crush margins are the result of buyers competing for the same supplies in a smaller than expected production year.
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“I think farmers are going to have competitive canola bids for most of the winter, and on the board crush margin side we will probably see that narrow up throughout the winter,” Pearson said.
Statistics Canada reported Oct. 4 that this year’s canola harvest will be 13.36 million tonnes, which is far short of the 15.4 million tonnes it estimated Aug. 22.
Canola yields were affected by excessive heat while flowering, shelling out because of strong wind when lying in the swath, and disease, including aster yellows and sclerotinia.
Canadian Canola Growers Association general manager Rick White, said high canola prices and less than robust supplies will pressure crush margins as crushers source their supplies and try to outbid the export market.
As of last week, canola exports stood at 1.08 million tonnes, almost steady with last year at the same point. Domestic crush was 1.17 million tonnes, up 12.6 percent over last year.
White said high canola demand will outstrip supply and there will be little carry over next year. However, the price can go only so high before other vegetable oils out-compete canola in the world vegetable oil pricing complex.
“There is going to be demand rationing, there’s no doubt about it. There is more demand for healthy vegetable oil like canola than there is supply at this point,” White said.
He believes crushers are still making money, even with the reduced crusher margins.
“They’re in the business of doing business — they wouldn’t do it at a loss. It’s fine if things tighten up because that’s efficiency and that’s competition at work,” White said. “Competition and the open market will discipline itself until the point where normal profits are made.”
Pearson said it will be important to watch the level of sales between now and the end of December.
“If there is a big West Coast program for canola to China and other customers, then that obviously leaves a lot less canola for the crushers in the last seven months of the crop year,” Pearson said.
