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Legumex looks to hedging, as poor crush margins weigh

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Legumex Walker highlighted a growing emphasis on hedging to boost its performance in oilseed crushing profits after unusually tight margins contributed to continued losses which send the group's shares down 9%.

The Canada-based group said that its oilseeds crushing operations had run at an operating loss of Can$2.35m for the January-to-March quarter, an improvement of only Can$82,000 year on year, despite a growth of 19% to 67,100 tonnes in crushing volumes.

The group's Pacific Coast Canola plant ran at 71% of capacity during the quarter, compared with 59% a year before, implying more efficient operations.

However, "the increase in tonnes crushed was offset by some of the lower board crush margins since the plant was commissioned in early 2013," Legumex Walker said.

'Glut of protein meals'

Margins were depressed in part "higher-than-expected" basis – the premium of cash to futures prices – in canola, supporting costs of the plant's key raw material.

Meanwhile, a "glut of protein meals" depressed prices of the canola meal that the plant produces.

"Both of these are supply and demand driven factors that are expected to improve in future periods," Legumex Walker said.

However, it also stressed that "to protect margins on traded tonnage, Pacific Coast Canola has entered into hedge contracts to lock in crush margins.

"Pacific Coast Canola management monitors crush margins daily and will continue to hedge risk as appropriate."

'Delayed deliveries'

The comments came as the group, which in March invited takeover bids, unveiled a 42% increase to Can$8.67m in after-tax losses for the January-to-March period.

Revenues dropped 33% to Can$85.8m, reflecting in part accounting adjustments prompted by a crushing contract at Pacific Coast Canola, but also a drop of 12.5% to Can$82.6m in revenues at the group's special crops division, which processes the likes of flax, lentils and canary seed.

The drop reflected a dent to sales volumes from a "late harvest, which delayed deliveries and shipments", Legumex said.

Underlying operating profits in special crops fell by 15.8% to Can$3.23m.

Shares fall

"Overall company performance was steady, "said Joel Horn, the Legumex chief executive.

He added: "Pacific Coast Canola continues to work to improve its financial performance when additional non-GMO and local canola seed should be available with the new crop in September."

Nonetheless, Legumex Walker shares stood Can$6.9% lower at Can$3.52 in afternoon deals in Toronto, after hitting Can$3.44 earlier.


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