Canola crushers in Western Canada are having a tougher time bringing in feedstock supplies from farmers, and will likely be forced to operate with tighter profit margins going forward, according to market participants.
A sell-off in the CBOT (Chicago Board of Trade) soybean complex, together with uncertainty in the Prairie crop, has caused canola prices to lag soybeans to the downside and the crush margins to deteriorate, said a Winnipeg broker.
Taken on their own, the declining canola prices over the past month should be supportive for crush margins, given the cheaper feedstock costs.
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However, product values have fallen by an even larger extent while the Canadian dollar has risen well above parity with its U.S. counterpart.
As a result, a western Canadian canola processor may be paying $30 less for a tonne of canola than the processor did a month ago, but it is also making $25 less at the other end.
According to ICE Futures Canada data, nearby margins currently sit at about $90 per tonne above the November futures, which compares with $116 per tonne the previous month and highs of $130 above the futures earlier in the summer.
"Their margins aren’t as good as they were a month ago, but they are still reasonably good," said a broker.
With mounting worries over yield losses in Western Canada, he said the crushers sense their margins will likely get squeezed even more. With tighter supplies likely, he said it may also be hard for the crushers to pry canola out of producers’ hands this winter.
Those factors point to a further reduction in crush margins going forward, if the processors can expect to keep operating at their record pace, traders added.
— Phil Franz-Warkentin writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.
