Canada Markets

Canola Crush Margins Remain Range-Bound

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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Based on the methodology used to calculate COPA's Canadian Canola Board Margin Index, this proxy for returns generated crushing canola (weekly chart) shows range-bound trade over recent weeks while trading at just 52% of the level reported for the same week in 2016. (DTN graphic by Nick Scalise)

The attached chart shows the trend in a calculated canola crush margin index, which has remained range-bound since mid-July, ranging from $73.84/metric ton over the nearby future for the week of July 17 to a low of $51.46/mt over the nearby future for the week of Aug. 14. Today's close was $59.47/mt, which is in the lower one-half of the range traded.

The calculation is largely based on the formula used by the Canadian Oilseeds Processors Association, which is described as follows:

Canola Board Crush Margin in CAD/metric tons = ((BO*22.04623* Noon Rate*.40) + (SM*1.103*Noon Rate*.6*.75)) - ICE Canola seed future

(Where: BO = soybean oil future, SM = soymeal future and Noon Rate = daily report from the Bank of Canada)

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Given that the Bank of Canada ended the daily reporting of the historical noon rate as of March 1 2017, it is assumed that COPA's formula continues to rely on a daily exchange rate reported by the Bank of Canada. The CAD/USD rate is now just one of 26 currency pairs reported by the Central Bank that is based on an average trading level over the course of each business day. Instead, the index calculated on today's chart is based on the closing spot Canadian dollar trade.

Since the recent high reached of $131.74/mt for the week of Jan. 9, the return has been challenged by weakness in soybean oil futures, soymeal futures along with a higher Canadian dollar trade. For example, the continuous soybean oil chart points to a drop of 6.7% from the close the week of Jan. 9 to today's close, soybean has fallen by 7.7% while the Canadian dollar has increased by 5.2%, all three factors negatively affecting potential crush margins. One potential distortion to the formula is the contribution of oil that is pegged at 40%, while the Canadian Grain Commission's Preliminary quality of western Canadian canola 2017 points to a mean oil content of 44.8% across all grades, although this represents early results and is far from final.

The current index calculated is just 52% of the level reported this time last year while also below the three-year average for this week at $90.86/mt. Despite this, the latest Canadian Oilseed Processors Association crush data as of Sept. 27 shows the weekly crush at 184,831 metric tons, up 8.9% from the previous week and 14.6% higher than the previous four-week moving average. Despite weaker crush margins, the cumulative crush is just 63,617 metric tons behind the record pace set in the 2016/17 crop year.

Producers continue to deliver seed at a record pace, with the most recent Week 8 data showing 2.9346 million metric tons delivered into the licensed handling system, including crushers, which is 7.6% or 206,500 metric tons ahead of the pace set last year as of Sept. 24 data.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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