Crude oil prices, a weak Canadian dollar and poor soybean meal contracts factors in tight margins
Canola crush margins are tightening, and that means lacklustre bids for old crop, say analysts.
The canola board crush margin was $65 per tonne as of May 22, down from $173 per tonne a year ago.
“There is definitely a down trend going on here,” said an oilseed analyst who requested anonymity.
Joel Horn, president of Legumex Walker, a grain company that operates a canola crush facility in Warden, Washington, blamed slumping margins for the disappointing quarterly results in the company’s oilseed division.
“The entire North American canola crush industry is working within one of the lowest crush margin environments since we commissioned the canola plant in 2013,” he told investment analysts during a recent conference call.
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He attributed the poor margins to the continued weakness in crude oil prices. However, he noted that margins always bounce back.
The analyst said crush margins for individual plants vary from the canola board crush margins. For instance, plants in Saskatchewan will likely have lower margins be-cause of higher logistics costs getting the product to market.
He said a stronger Canadian dollar, weakening soybean meal and soybean oil contracts and strengthening canola futures are all contributing to tighter margins in recent weeks.
“It would tend to mean guys would bid a little bit less if their margins are getting tighter,” the analyst said.
“It will hold the line on cash prices going up too much.”
How long crush facilities are saddled with lower margins will depend on how much new crop canola farmers produce.
“If we get a good crop here, I think that will improve margins,” he said.
“It’s more an old crop problem, not as much on the new crop until we see what the production is going to be.”
Statistics Canada is forecasting 19.4 million acres of canola, but the analyst said the agency has a tendency to underestimate the canola crop by about one million acres.
“I think it will be higher, but I wouldn’t say it is too much more than 20 (million acres),” he said.
Jon Driedger, an analyst with FarmLink Marketing Solutions, said canola crush plants are running at 70 to 75 percent capacity compared to more than 80 percent a year ago.
“We’ve seen the pace of crush lagging a little bit the last number of weeks,” he said.
It means less canola demand and higher carry-out for 2014-15, al-though it shouldn’t be anything too dramatic, maybe 200,000 tonnes.
“It may be the difference between the market being really tight and maybe having just a little more cushion going into the next crop year,” said Driedger.
“Demand overall has been good and we’re certainly not going to be sitting on a mountain of canola going into the next harvest.”
He said the canola crush board margin is calculated using soybean oil and soybean meal prices, so it is hard to get an exact read on how the industry if faring.
However, he said Archer Daniels Midland recently announced it is converting some of its canola processing capacity in Enderlin, North Dakota, and Windsor, Ont., to soybeans.
“Maybe that is a bit of an indication that some of these margins have been a little less robust than they had been,” said Driedger.
However, he still expects crush volumes to increase in 2015-16 because of some of the capacity expansion occurring in the industry from companies such as Cargill and Bunge.
Contact sean.pratt@producer.com
