WINNIPEG, Manitoba (Reuters) - Problems with Canada's canola crop are driving up the oilseed's price, cutting processors' margins to their lowest levels in two years and threatening to boost the price of a key ingredient of salad dressings and potato chips.
Frost and dry conditions on the Canadian Prairies have damaged the crop, which processors, including Bunge Ltd (BG.N) and Richardson International, crush for vegetable oil.
As of Monday, crushers' profit margin was C$47.87 ($38.48) per tonne, according to ICE Futures Canada, based on the nearby futures price, which hit its highest level since September 2013. That margin was up slightly from a week earlier, but was still 66 percent lower than a year ago.
The margin, which measures industry returns, factors in futures prices of canola seed, as well as soybean oil and soymeal, which are similar to processed canola products.
Weaker Chicago soyoil prices BOc1, trading about 18 percent lower than a year ago, have also weakened canola margins for crushers.
Due to weak margins, crushers will slow production more than usual during summer maintenance and likely delay canola oil and meal sales, said Chris Vervaet, executive director of Canadian Oilseed Processors Association (COPA), whose members include Archer Daniels Midland Co (ADM.N) and Louis Dreyfus Corp [LOUDR.UL].
The 2014/15 canola crush volume of 6.5 million tonnes as of June 24 actually exceeds the pace of a year earlier, according to COPA. [OILS/CA] The higher volume reflects processing levels when margins were more attractive, said Don Roberts, canola analyst at Ag Commodity Research.
Calgary-based Sunora Foods SNF.V has contracts to buy canola oil from crushers through August, and in some cases through 2015, said Chief Executive Steve Bank. The company sells canola oil to distributors, groceries and restaurants.
Crushers are already seeking price increases for new sales, he said.
"If the price goes up, we'll sell at a higher price level," Bank said. Those higher prices would work their way all the way to the consumer, he said.
Most canola oil buyers would not accept a vegetable oil substitute made from soybean or corn, which Sunora also sells, Bank said.
Angelo Karaiskos, president of Montreal-based Titan Oils, said crushers are already unwilling to commit to canola oil sales for the fourth quarter or 2016.
Leftover canola supplies from the current crop year are likely to be minimal, Roberts said, putting more importance on the new harvest.
Editing by Peter Galloway