Gilbert Plains, Man., farmer Dale Gryba didn’t need to think long about what a huge new canola crushing plant will mean to him.
“More competition is good,” said the farmer, who is a director with the Manitoba Canola Growers Association.
That’s especially true if it is built in eastern Saskatchewan or western Manitoba, where many experts expect to see James Richardson International locate its 840,000-tonnes per-year plant.
“Any industry close to me reduces my cost of transportation and is a help,” said Gryba.
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Canola industry watchers think that boosting crush capacity on the Prairies will put a firm foundation under future canola prices, something that has been lacking in the past two years.
“Long term, it’s going to be much better for prices,” said Brenda Tjaden Lepp of FarmLink Marketing Solutions about the JRI plant, other crusher expansions and the announcement of biodiesel plants.
“It’s a step closer to the end user.”
The canola industry has long been led by seed exports to high-priced foreign markets like Japan and Mexico, with the domestic crush taking a significant but not dominant share of what remains. Often that led to soft canola prices and crushers were left with more of the crop than they needed. That required overseas seed sales to low value markets such as China and Pakistan.
But if crushing capacity is dramatically increased, some of that surplus supply will disappear, and the crushers and high value exporters will pay farmers better prices. Buyers in Japan aren’t willing to go without canola, so they’ll pay what they have to. And crushers don’t want to run their plants at less than capacity.
“We’re making that shift from extremely elastic demand, price sensitive demand, to demand that’s inelastic, and that will generally mean higher prices,” said Canola Council of Canada president Barb Isman.
That firm demand will get stronger if the high value European Union market, now shut because of a squabble over genetic modification, is reopened.
“You start to see a pretty exciting future for returns to farmers,” said Isman.
This year’s glutted canola market has been a heartbreaker for many farmers, offering poor prices all winter. Last year probably produced a 10 million tonne crop, which added to a 1.7 million tonne carryout.
The Prairies’ present crush capacity is about 3.5 million tonnes per year, Japanese demand is always two million tonnes, and the Mexicans take about one million tonnes. That leaves a lot left over and results in poor prices.
Tjaden Lepp said all the new construction projects should add about two million tonnes of new crusher capacity on the Prairies, and that’s going to eat up a lot of crop. However, not much may happen until spring 2007, when the demand from the new plants will be factored into prices.
“We’re going to need a massive 2007-08 crop,” said Tjaden Lepp.
“How do you do that? You bid the crop up to $8.50 per bushel in the spring next year to make sure the acres go in.”
In the 1990s, the boom in concrete elevator construction led to cheap trucking as elevators seeking supplies were willing to compress their margins to get it.
Farmers lucky enough to live close to the new plant will find they have a low basis level. But for all canola growers, a big new buyer is nothing but a good thing, Gryba said.
“Competition is sweet,” he said.
