Poor rail service and a lack of competition contribute to the viability of a 2,000-tonne-per-day soybean-crushing plant in Manitoba, a study prepared for the Manitoba Pulse & Soybean Growers (MPSG) and Soy 20/20 says.
“Indeed, the numbers tell us that if adequate and regular rail service existed in Manitoba then both a Canadian and/or a U.S. crusher would find it difficult to compete with the Vancouver export market for soybeans,” the study says. “For the price advantage, all Manitoba soybeans would simply move to the West Coast.
“However, that’s not a reality today.”
Nor is it likely to be any time soon, the MPSG’s executive director Francois Labelle said in an interview.
“A senior person from the CTA (Canadian Transportation Agency) told me one day this (transportation) problem has been over 100 years in the making and we won’t see it solved in our lifetime,” he said.
A Manitoba soybean-crushing plant would make Manitoba soybean producers less dependent on the railways and sometimes fickle export markets, provide Manitoba and western Canadian livestock producers with a domestic source of protein meal and boost Manitoba’s economy by $190 million a year before taxes.
“We’re excited about the prospect that there are enough soybeans here (to justify a crushing) plant,” Labelle said. “The next task is probably the harder one — convincing somebody to come forward and get serious about looking at this. But without the study and the ($52,500 in) funding we received from the province and the federal government under GF2 (Growing Forward 2) we wouldn’t have got the study done and we wouldn’t have had a starting point.”
The study says assuming continued adequate nearby soybean supplies and meal markets a US$90-million Manitoba plant would have a margin of $72.97 a tonne based on a 20-year payback.
“Because rail car allocation remains limited, this could help a Manitoba crush plant source soybeans locally by offering farmers alternate delivery opportunities for soybeans even if it were at a lower price, while the export pipeline would continually pose a substantial risk to the availability of local supplies for a Manitoba soybean crush plant,” the study says.
Grain companies are making approximately “a $50-a-tonne premium over and above their handling fees and margins,” likely because of “inadequate rail service and a lack of competition amongst exporters.”
The report says if farmers invested in a plant they could capture some of those margins.
That’s up to farmers, Labelle said. MPSG would supply information but investors would have to develop their own plan, he added.
The study suggests the best place to locate a plant is between Portage la Prairie and Winnipeg and Lake Manitoba and Carman. (The report refers to Elm Creek, but only as a ‘place holder.’)
That area is close to most of Manitoba’s soybean production, feed mills and road and rail corridors and far enough away from northern U.S. crushers to have a freight cost advantage. However, Labelle noted the study is based on current statistics and future soybean production and possible hog production, will be in western Manitoba.
The study recommends a “switch” crushing plant — one that can process canola as well as soybeans. That way if soybean supplies get tight canola can be crushed, justifying a plant large enough to capture economies of scale.
The study also notes some existing Manitoba canola crushers could start crushing soybeans, but none have.
A facility could be built in two phases — the first being a high-capacity transfer elevator followed by a crushing plant. The elevator would provide storage for a future plant. In the meantime the owners could make money to invest in the crushing plant by exporting soybeans.
“It also allows time to see, as we predict, that soybean acreage continues to grow within the lower price environment,” the study says.
Manitoba soybean acreage grew more than sixfold between 2004 and 2014 to 1.27 million acres from 195,000; production jumped to 1.16 million tonnes from 41,000. Manitoba accounts for 18 per cent of Canada’s soybean production.
Soybean production took off in Manitoba because it could earn farmers more money than canola or wheat, the study says. The price differences are narrowing so the rate of increase will slow. Still, the study forecasts Manitoba and Saskatchewan soybean production will jump 169 per cent or 600,000 tonnes in 10 years.
A 2,000-tonne-a-day plant could crush 695,000 tonnes of soybeans a year.
“We suspected we were getting awfully close to the point where we could justify a facility with the acres and the production we have,” Labelle said.
“And we’re going to see more growth in acres as well.”
But will there be enough soybean meal markets? The study projects meal sales in Manitoba, Saskatchewan and Alberta will fall by 27,734 tonnes by 2024, but increase by 41,550 in British Columbia.
The study notes cattle and hog production has and will continue to decline in Western Canada, while chicken and turkey production has and will continue to grow.
The study’s authors didn’t explore soy oil markets in depth, but suggest much of it would be exported to the U.S. for biodiesel.
There’s little demand in Canada for soy oil, and even less in Western Canada, because there’s so much canola oil present, which is also considered healthier for human consumption, the study says.