Canola crush margins keep dropping

CNS Canada — Canola crush margins remain in free-fall as canola seed becomes more and more expensive relative to the product values.

“They’re not deteriorating, they’re flat-out disintegrating,” said a canola trader, pointing to the $20 drop over the past week alone.

Crush levels have only been lower than they are now a couple times over the past 14 years, the trader said.

“Canola is already wildly expensive, but it could get more expensive… if we go through a stretch without rain,” he said, noting there are still large areas of Saskatchewan and Alberta that need more moisture.

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As a result, the increasing likelihood of a below-average canola crop will keep the futures market moving higher — and margins moving lower — to ration demand.

Crush margins provide an indication of the profitability of the product values relative to the seed cost when processing canola, with exchange rates also factoring in to the equation.

The Canola Board Crush Margin calculated by ICE Futures Canada was at about $37 above the new-crop November contract as of Monday, compared to levels closer to $57 a week earlier and almost $100 below the year-ago level.

The actual cash crush is likely a little more profitable than the futures crush, due to high canola oil premiums, according to the trader. Processors were “not yet losing money, but they’re getting close.”

Crushers should have pre-booked a large portion of their margins at substantially better levels than the current numbers would suggest. However, the question now is how long they can keep going if the margins remain poor.

“They’ll back down to the bare minimum at some point,” said the trader.

Domestic crushers processed 130,383 tonnes of canola during the week ended last Wednesday, which was only 65 per cent of capacity and well off the year-to-date average crush capacity utilization of 82 per cent.

Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

 

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