Canola crushing margins excessive in Canada?

[chuckChuck]

The important point to consider is that canola crushers will take excess margins when the market conditions alow it to happen.

This happens at the expense of producers.

In a very efficient, competitive market that is working well, this should not happen.

Charlie. So when it is it not in the interest of farmers to be concerned about excess margins and trying maximize returns from the marketplace?

Many you are quite happy to criticize the CWB but when it comes to concerns in the open market you have got nothing negative to say.

[gregpet]

chuck maybe if someone else was asking the question. Your jaded view of
the CWB through rose colored glasses and the lack of any criticism of the
CWB system has probably contributed to the responses you recieve.

Until you answer the CWB questions without prejudice you cannot expect
others to answer your questions.

[jdepape]

I wouldn't even call it theoretical. The soybean crushing industry has always referred to "board crush" - relating to the relationship between beans and its products. Board margins are a market tool like any other spread relationship. There are historical levels that are often used as indicators of the current market. Like any other index - they are used to indicate to the industry things like the current viability of crushing, what is driving the crush (is it oil-led or meal-led?), and can help forecast things like future appetite for beans (which leads to basis adjustments), etc, etc.

The Canadian canola crushers publish board margins to provide market information. Unfortunately, with the market distortions from the CWB, the board margin is not as good a tool as it will be in the future - once we no longer have the CWB distortions.

[charliep]

chuckChuck

We would have to agree to what excess margins are - don't know if that is possible. I will highlight the canola industry is growing at an extremely rapid pace and is characturized by profitability at close to every stage. Growth in acres. Growth in domestic crushing capacity. Growth in export demand. This to me is a sign of success. The industry has been able to grow based on collaboration at all stages of the supply chaing - not confrontation and bickering.

[jdepape]

ChuckChuck: "The important point to consider is that canola crushers will take excess margins when the market conditions alow it to happen."

I agree.

The next thing to consider seriously is what has caused the "market conditions" to allow it. And this where you fail - you don't even want to consider that this is a CWB issue. But you cannot fail to acknowledge that the "market conditions" that impact on crush margins include the substantial and wide-reaching impacts of the CWB in its former structure (with a single desk). In other words, what you are complaining about happened in a CWB single desk environment.

To have a credible argument you need to be open to all possible factors.

[sumdumguy]

As an economist Rossassen should know the
laws of supply and demand.

[chuckChuck]

Depape. Okay just to to satisfy your penchant to blame the CWB for farmers taking a drubbing in canola market after harvest. Let me agree with that suggestion since, you agreed the crushing industry is taking excess margins when it can.

But what happens after the CWB in a fully open market when the supply of many grains exceeds the demand in a recession? Farmers still have cash flow needs. If excess margins are currently occurring in the canola market with public price discovery and risk management tools imagine what is happening in special crops.

Take red lentils right now. The current price sucks at .15 cents because of oversupply. What are the overseas buyers paying now versus when the price was closer to .30 cents? Do you think traders might be taking extra margin? Has the price at the retail level dropped by 50% in consuming countries? If it hasn't dropped by 50% where is the difference going? Who is taking the extra margin?

By the way much of the recent increase in prices for many commodities is being driven by ethanol and bio-fuel policy in the US which is pushing corn acres up at the expense of other crops. Essentially farmers are benefiting from government intervention in the ag. markets.

When commodity prices fluctuate significantly lower are the savings always passed to consumers? No. Retail prices seem fairly constant.
Excessive margins are a reality in many parts of the food chain.

How often do farmers benefit from excess margins?

[TOM4CWB]

Chuck,

In my experience the CWB was the fastest to lower the PRO... then stop growers from selling... even if the price ended up dropping another 20 percent the next crop year.

The CWB never knew the future... just as you cannot know what wheat prices will be in 18 months.

It is clearly much more intelligent and reasonable to allow growers to sell now than force them to hold wheat till next year... a million tonnes sold now by western Canadian wheat growers out of a 650M tonne plus wheat market means diddly.

Back to reality for just a second... the 'single desk' was a farce... market discipline by growers is 10 times more effective than the CWB 'single desk' ever was!

And Canola prices... prove this beyond the shadow of a reasonable doubt!

Nice try though... my bet is now fall prices in Canada will get better... basis will tighten up... as cash flow needs are met by wheat and canola market forces must bid up prices to buy acres and deliveries!

[charliep]

chuckChuck

I assume profitability in all aspects of the supply
chain is a good thing. What is your definition of
excess margin? Do all businesses including farmers
have the same cost structure?

If you believe there is excess margin (I assume you
mean profit), what system would you suggest to
deal with this? More regulation? In a world where
Canada competes for investment dollars for
processsing, would more regulation be a good
things or bad thing? Is investment in logistic and
processing capacity in Western canada a good thing
or bad thing?

[charliep]

I will note crush capacity in western Canada has gone
from about 1 million tonnes to over 7 million tonnes in
the past 20 years. Is this a good thing for western
Canadian farmers? In terms of profit per acre, where
does canola rate relative to other crops? How about
ability to generate cash flow when money is needed to
pay bills?