Saturday, August 27, 2016

Input Capital share price declining due to dispute with China


A long-standing dispute involving Canadian canola exports to China threatens to overshadow Prime Minister Justin Trudeau's trip to the economic superpower that begins next week.

Canada says it wants the canola issue settled before relations between the two countries can move forward, while China has accused Ottawa of inflexibility and says it may look to other suppliers.


The 6½-year spat centres on a disease known as blackleg that can affect canola, and the amount of dockage — the stems, pods, weeds and other plants — that winds up in shipments.

The current maximum dockage rate of foreign materials is 2.5 per cent, but China, which is worried about the spread of blackleg to its domestic rapeseed crops, is insisting that the rate must be cut to one per cent, and has given Canada a Sept. 1 deadline to make that change.

Since the deadline to this dispute is September 1 the market is beginning to get nervous and the shares of Input Capital have fallen about 15%. The situation is further exacerbated by the fact that the canola harvest is looking pretty good and canola prices have been falling in anticipation. 

We need to keep an eye on this as China is the largest canola export market for Canada. I am in this company for the long term so eventually this dispute will resolve or China will switch suppliers and Canada will have to seek other markets for its canola. It could be very disruptive in the short to mid term but in the long term any big drop in Input's price will provide another buying opportunity. The demand for oilseeds and meal is going up long term. 

Any big drop in in the canola price that causes Input shares to drop big is a gift in my view. I will continue to update as information become available. 

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