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Canola crush margins ease, demand remains strong

(Commodity News Service Canada) — Canola crush margins for western Canadian processors have weakened off slightly, but demand for the commodity remains strong.

Some of the drop-off in profitability was attributed in part to some weakening of U.S. soy product values. The ability of the Canadian dollar to hold above parity with the U.S. greenback was only seen as a minor undermining influence on crush levels, with processors in Western Canada already factoring the fluctuating currency into margins.

“Based on my calculations, processor margins are currently running in the $94 to $95 per tonne range,” said Bill Craddock, an independent commodity trader and southern Manitoba producer. 

At the end of December, processor margins were in the $110 range while at the same time a year ago, margins were running in the $125 per tonne level. However, at the end of October 2010, margins were barely in the $80 range.

During the 2009-10 crop year, canola crush margins were said to have averaged in the $71 per tonne range, while so far in the 2010-11 season, margins have so far averaged $76 per tonne, said Chris Beckman, an oilseed analyst with the market analysis division of Agriculture and Agri-Food Canada (AAFC) in Winnipeg.

Some of the profit margin loss was also being attributed to the fact that producers in Western Canada aren’t exactly in any hurry to deliver canola due in part to the cold weather which has engulfed the Prairies and because oilseed values in general are continuing to move up.

“New contract highs recently in ICE canola futures have producers holding out for even better values, before making any commitment to deliver to either the processor or elevator system,” Craddock said.

Craddock also pointed out that while Canadian Grain Commission statistics show large visible stocks of canola are in commercial position, there are concerns that supplies of the commodity are going to tighten over the next few months, which could end up eating away at some of the margin base.

Crush capacity

The ever-increasing crush capacity in Canada was also expected to continue diminishing available canola supply, Beckman said. Crush capacity in Canada, including swing plants in Ontario, was pegged at an estimated 7.5 million tonnes.

Crush capacity in Canada was seen increasing in calendar 2011, but not by the numbers seen during 2010.

Some of the sales on the books for processors at present were said to have included canola oil sales to China, Beckman said. 

Further canola oil sales from Canada to China were anticipated when the new Chinese year begins.

Data from the Canadian Oilseed Processors Association showed that 2.823 million tonnes of canola have been processed so far during the 2010-11 crop year, well ahead of 1.838 million at the same time in the 2009-10 season.

AAFC in its December supply/demand projection estimated Canada’s domestic crush at a record 6.439 million tonnes, which compares with the previous record of 4.921 million in 2009-10.

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