When Mike Jubinville noticed crush margins deteriorating several weeks ago, he told farmers who subscribe to his market advisory service to sell some canola.
“At some point, crusher demand is going to start backing off if you squeeze the margins too tightly,” explained Jubinville, of Pro Farmer Canada.
But he believes Canadian crushers are still making money and will continue to run.
“Whether we’re going to be able to maintain the record weekly pace of over 70,000 tonnes a week, that’s hard to say,” he said.
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“We may back off a bit, but I don’t think we’re going to see any large-scale shutdowns by any means,” he said.
But because of a strong world oil market, export customers should continue to bid canola higher, said Jubinville.
He believes farmers should save their last bit of old-crop canola for April or May.
Canola has been trading in the $402 to $415 per tonne range for quite a while, he said. But he believes May futures could break out to $420 to $430 per tonne sometime in April or May.
Paul Cassidy of Mitcon Inc. in Calgary, said crushers have forward-sold oil into May. Canola oil still carries premiums over soybean oil, he said.
But Cassidy doesn’t think Canadian crushers will be able to keep up their record pace for the rest of the crop year because they’ll run out of seed.
The general manager of oilseed trading for Canada’s largest crusher agrees.
“We’re really questioning, with the pace of crush that’s there … how is this going to shape up for the last quarter of the year?” said Rick Watson of Canamera Foods.
Supplies will be “snug,” and he encouraged farmers to feed the current demand for canola with sales.
After the end of May, Cassidy said it will be tougher for crushers to find canola left on farms. Prices will be tighter, and margins will be squeezed by South American soybeans coming on the market.
Canbra, a crusher in Lethbridge, Alta., has already told farmers it won’t bid on canola for May delivery because it plans to close for annual maintenance.
Cassidy said this move is “a little bit surprising,” given that crushers usually do repairs in late July.
Watson said crushers make sales two to three months in advance. If they see declining demand combined with farmers not selling seed, they may be forced to step away from the market.
“We’re not there yet, but we certainly see some signals out there in the marketplace that this could materialize,” said Watson.
Farmers should watch weekly crush numbers for clues that crushers are winding down, leading to declining prices or widening bases.
“The signals are there, the warnings are there if you pay attention to them,” said Cassidy.
“Don’t wait to see the signals happen. Get the cash sold now and buy a call.”
Call options on July or September canola or soybean oil will let farmers ride up rallies induced by a weather scare.
If prices collapse, farmers with calls have risked only five to eight percent of the price of canola.
Farmers without calls but with canola in the bin risk spoilage, or being hurt by a wide basis or declining price, said Cassidy.
