Canada’s oilseed processors are crushing less canola, the first tangible sign that the rapidly expanding industry has run into a rut because of a dispute over salmonella with the U.S. Food and Drug Administration.
Crushing has decreased even as processors are boosting capacity. If the trend continues, more seed could shift to export and overhang the canola futures market.
The amount of canola processed by crushers from Aug. 1 through Oct. 14 was down six per cent, or 50,125 tonnes, from the same period a year earlier, the Canadian Oilseed Processors Association (COPA) said, despite the opening this summer of Cargill’s Clavet, Saskatchewan plant expansion.
COPA member crushers have used 71.2 per cent of capacity so far this crop year, down from 88.9 per cent a year ago.
Most in the industry point to the U.S. FDA’s restrictions over salmonella-contaminated canola meal against four plants –-owned by Viterra , Cargill and two by Bunge – as the reason for smaller crush volume.
“It’s not really good for anybody if the issue’s not resolved,” said Tracy Lussier, manager of canola trading at Louis Dreyfus Canada Ltd., which is opening its 850,000-tonne-seed-crushing plant in Yorkton, Saskatchewan next month. “Your crush margins (profitability) are reduced if you’re unable to sell into the U.S.”
The FDA is rejecting farm products with salmonella after the bacteria caused widespread illness in the United States earlier this year. The canola industry argues that meal, used as animal feed, should not be treated the same as human food.
Canola production has almost doubled in five years to a record 12.6 million tonnes last year, fuelling construction of new crushing plants by Cargill, Louis Dreyfus and James Richardson International (opening early next year).
Canada produces 2.5 million tonnes of canola meal annually worth about C$500 million ($481 million), with United States cattle farmers a key customer.
The startup of Louis Dreyfus in mid-November should boost crushing volumes, one industry source said, but that may not last if Canadian plants continue to run afoul of the FDA.
“There’s no question that the fact we can’t export as much meal to the U.S. as we normally do and might have to find alternative markets is having an effect on meal values,” said Dave Hickling, vice-president of canola utilization for the Canola Council of Canada.
The rising Canadian dollar may also have contributed to weaker crush volumes, he said.
With less domestic demand, more canola seed would likely sell for export. Canada is the world’s largest canola exporter.
“The industry normally relies on having both strong domestic and export markets,” Hickling said. “Our hope is we can continue to maintain that balanced demand.”
Agriculture Canada has pegged canola exports to shrink 24 per cent to six million tonnes, but the smaller crush volumes have since attracted more attention. FDA continues to turn back canola meal, the source said.