by Agrimoney.com
Oilseed crushers should choose their crop carefully.
Just look at the difference in the fortunes of North American processors handling canola, Canada's most popular oilseed, and the soybeans prevalent south of the border.
Crushing canola, the rapeseed variant, last year earned margins of $129 a tonne, compared with $28 a tonne for soybeans, according to Rabobank.
And, without a nudge from China, the dynamics look unlikely to reverse any time soon.
Importance of oil
Part of the difference is down to seed characteristics.
Canola's yield of vegetable oil is, at 42-44%, more than twice that of soybeans. And oil, largely used in human consumption, is typically three-to-four times more valuable than meal, the other product of oilseed, an important ingredient in livestock feed.
Furthermore, canola oil is viewed on health grounds as superior to soyoil, higher in so-called trans-fats linked to cholesterol fears. California and New York city have imposed trans-fat bans, with Illinois considering one.
"With a 12% compound annual growth rate since 2001, Canada's canola producers have demonstrated that they are willing and able to continue displacing US-produced soyoil for food use," Rabobank analyst David Nelson said.
Margin pressures
However, knock-on market dynamics have put soybean crushers at a disadvantage too.
The decision by China to fill its huge deficit in soymeal and soyoil by importing the oilseed itself, to keep its crushers in business, rather than buying in the products has curtailed prospects.
"China's surge in soybean imports means that US processors must pay higher prices for soybeans relative to the domestic price for soymeal, which has contributed to processor margin contraction," Mr Nelson said.
Indeed, US soymeal prices have proven especially restrained by growing supplies of distillers' grains, a byproduct of America's booming corn-ethanol industry, and an alternative protein source for livestock feeders.
"The distillers' grains discount has dissipated as animal protein producers have done a better job at incorporating the [product].
"Clearly, the entrance of a major new competitor has tempered soymeal demand, as well as crushing margins."
Hope ahead?
At least the prospect of a slowdown in growth in the US corn ethanol industry, as tax fillips are withdrawn, provides hope for soybean crushers, in curbing growth in distillers' grains supplies.
However, the main hope for the industry may be a turn by China to importing meat - probably largely from the US - to fulfil burgeoning demand for protein, rather than the feed needed to stimulate its own livestock production.
Even the outsourcing of 2% of China's pork production to the US would lift America's output by 10%, with a consequent boost to soymeal demand.
"There is a certain logic to China importing some of its pork supplies," Mr Nelson said, noting that the country often has the most expensive corn, a major feed component, and has witnessed increasing concerns over food safety in the livestock industry.
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