What is the effect of lower crush margins?

Lower margins suggest canola crushers will reduce production, but that’s not necessarily so

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Crush margins have dropped sharply in the last 18 months, but the implications for canola producers aren’t clear, says a provincial crops analyst.

Canola crushers don’t disclose their margins, and so the trade estimates a “board” canola crush margin based on ICE Canada canola futures and U.S. futures markets for soybean oil and soybean meal, said Neil Blue.

“Keeping in mind that actual crusher margins do not necessarily match the calculated board crush margin, over the last 18 months, the canola board crush margin has dropped from $200-plus per tonne in February 2014 to the current level of about $50 per tonne, even though the Canadian dollar has weakened during that time,” said Blue.

“The implication, especially with the limited size of the 2015 Canadian canola crop, is that Canadian canola crushers will not be operating at full capacity this crop year. However, canola crush margins could improve.”

The low dollar is one factor that will help Canadian crushers, but there are several others, he said. U.S. meal prices could rebound after harvest, and vegetable oil values may improve, especially since lower rainfall levels in Malaysia and Indonesia this summer could reduce palm oil production and support vegetable oil prices.

Canola meal and oil also have well-developed markets, and that will keep Canadian crushers keen to attract canola deliveries in competition with export demand,” said Blue.

“You may expect stronger canola basis levels again this season after harvest selling pressure subsides.”

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