Tracking crush value
Canola producers have a new piece of information to watch to help decipher oilseed markets.
The Winnipeg Commodity Exchange has started publishing a Canadian canola board margin index developed by the Canadian Oilseed Processors Association.
The index will be updated daily at the close of the market and will be posted on the exchange’s daily market summery found on its internet website at www.wce.mb.ca.
Starting next week, The Western Producer will publish the Monday index in the Winnipeg futures chart on this page. The index has moved from about minus 10 in early October to about minus 8.5 in the second week of November.
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The index is not a traded contract and it doesn’t have a dollar value. It’s purpose is to show the relative profitability of crushing canola.
The index will be of greatest interest to oilseed crushing companies, but market analysts and farmers could benefit from following its progress.
For example, in the fall of 1996, canola crushers were squeezed between high canola seed prices and low world oil prices. For some plants, it became unprofitable to operate and they shut down.
The sudden removal of crusher demand caused canola seed prices to fall, to the surprise of many producers whose marketing mind-set was dominated by the small canola crop that had been harvested.
The November futures contract fell from $428 a tonne on Oct. 9 to $399 by Oct. 18.
The new index will give producers a rough guide to see when crushers are making or losing money. It is calculated using oil and meal values taken from the Chicago Board of Trade futures contracts. It assumes crushed canola yields 60 percent meal and 40 percent oil.
It converts the Chicago contract prices into per tonne values, takes 40 percent of the oil price and 60 percent of the meal price and adds them together.
This gives a rough indication of the value of the processed products from one tonne of canola.
It then subtracts the input costs, that is the price of a tonne of canola seed as determined by the nearby Winnipeg Commodity Exchange future contract. This gives a margin.
However, there are a host of variables not included in the calculation, not the least of which is currency conversion.
So the index does not show how many dollars processors make from each tonne crushed. It is simply a number that can be plotted to show a trend in canola processing returns.
The number will usually be negative and it seems that the farther away from zero, the less profitable it is to crush. Time will give a clearer picture of what index level indicates true profitability, but a number in the teens probably indicates that a crusher is doing OK.
