Processors in Canada continue to pay some pretty big sums in order to entice farmers to deliver canola to their doors, but in doing so profit margins have taken a turn for the worse.
"Based on my calculations, crush margins for canola dropped to their lowest level in six years during Thursday’s session to just above the $28 per tonne area," said Bill Craddock, a Manitoba farmer and private commodity trader.
In January, crush margins for processors ran in the $46 to $56 per tonne range.
At the same time a year ago crush margins for processors had run at the $82 per tonne level.
Craddock acknowledged the drop in profit margin had a lot to do with the fact that canola futures have steadily climbed and soyoil futures in the U.S. have fallen.
The amount of money it takes to pry supplies out of the hands of farmers in Western Canada was also a large factor in the deterioration of margins, he said.
Crushers in Manitoba were said to be paying in the area of $14.75 per bushel for immediate delivery while in isolated areas of Saskatchewan, processor bids were easily hitting $15 per bushel.
"The need to cover commitments continues to force processors to pay up for those supplies," said Mike Jubinville, an analyst with ProFarmer Canada.
With supplies of canola in Canada continuing to decline, he added, the need to ration those stocks will mean even lower margins
"The rationing has to begin soon, and granted it will be the exporters that back away from the market first, but domestic processors will also have to recognize that canola supplies will run out if they also don’t slow the usage pace," Jubinville said.
Strong sales commitments to the U.S. and China have helped to stimulate the need for crushers to secure enough canola to meet those commitments, a broker commented.
Recent expansion of crush plants across Canada also requires processors to remain aggressive.
Data from the Canadian Oilseed Processors Association (COPA) for the week ended Feb. 6 revealed 3.698 million tonnes of canola have been crushed by processors so far in the 2012-13 crop year. At the same time a year ago, 3.431 million tonnes of canola had been processed.
— Dwayne Klassen writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.