Canola School: Canola Prices Capped by Tight Crush Margins, Heavy Oil Supplies

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While the lower value of the Canadian dollar is supporting prices, canola values are still caught in a global oilseed market weighed down by heavy supplies.

“It’s a bit of a mixed bag for canola, within the context of a lot of negative things,” explains Shaun Wildman, Regina-based senior trader with Seaboard Corp, in this Canola School episode focusing on the market outlook for canola.

Shaun Wildman of Seaboard Corp was part of a canola market outlook panel sponsored by the Manitoba Canola Growers at the Cereals North America 2015 market outlook conference.

The value of the loonie has dropped 20 percent versus the U.S. dollar, making exports cheaper for international buyers, but it’s all relative to what’s happening with the currencies of major oilseed export competitors, he notes. The Brazilian Real, for example, has declined in value by 50 percent.

“The Brazilian farmer right now is getting the most Reals for their bushel of soybean that they have ever gotten. They’re quite happy to see the Chicago Board of Trade at $8.50 or $9 a bushel because that gives them the best return they’ve ever had. They’re quite happy to sell that,” Wildman explains. “And that’s putting a cap on prices.”

Heavy oil supplies have also squeezed crush margins, which according to ICE Futures Canada are at approximately 50 percent of where they were a year ago.

“The price of oil is simply too cheap. The crushing profitability is simply too poor,” he says. “Canola is expensive relative to what you can get for your oil and meal.”

Wildman suggests there’s value for producers in signing deferred contracts for delivery in spring or early summer, as May-June values are at a 50 cent/bushel premium to spot prices.

“That’s a 10 percent annualized return simply by waiting a few months to deliver,” he says. “There’s pretty good rail service this year, so I don’t foresee the types of problems we’ve had in the past where if you’ve sold April, you weren’t able to deliver it in April.”

Watch other Canola School episodes here

 

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Canola School (view all)Season 7 (2015) Episode 4
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