Statistics Canada released its first 2012 Canadian production estimates on Aug. 22. According to the results of their survey of 15,105 Canadian farms between July 25 and Aug. 1, record Canadian canola production is anticipated, with increases in wheat and barley seen as well.
But a number of issues have tamed the market influence of this report. Firstly, within minutes of the data release, market participants immediately attempted to reintroduce their own biases on production expectations over/under the StatsCan numbers. And certainly since the survey of growers was taken a month ago and early harvest returns are starting to trickle in, production estimates from growers and the trade are being scaled back somewhat as initial yields disappoint.
The report did not turn out to be a key driver of market prices. Quite frankly, Canadian supply/demand dynamics are not driving the price discovery bus. One simply needs to view market conditions south of the border for ultimate market leadership for now. The bigger issue is still about addressing the ongoing American crop wreck, and more specifically demand changes that need to happen going forward.
Still, this report highlights that scorching midsummer heat and other factors in Western Canada have trimmed yield potential in canola and wheat. While the report did indicate farmers remain on course to produce bountiful crops overall this year, there are already suggestions that the production totals noted below are likely to decline in future reports.
July estimates of production of principal field crops
Crop 2010 2011 July 2012p 2010 2011 to
To 2011 July 2012
thousands of metric tonnes % change
Ttl wheat1 23,167 25 261 27 013 9.0 6.9
Spring wheat 17 485 18 031 19 058 3.1 5.7
Durum wheat 3 025 4 172 4 273 37.9 2.4
Winter wheat 2 657 3 058 3 682 15.1 20.4
Canola 12 773 14 165 15 410 10.9 8.8
Corn 11 715 10 689 11 703 -8.8 9.5
Barley 7 605 7 756 9 508 2.0 22.6
Soybeans 4 345 4 246 4 405 -2.3 3.7
Oats 2 480 2 997 2 994 20.9 -0.1
Field peas 3 018 2 116 2 981 -29.9 40.9
Flaxseed 423 368 547 -12.9 48.4
StatsCan pegged Canadian canola output at a record high 15.2 million tonnes, surpassing the record of 14.0 million tonnes set last year. However, this number came in below trade expectations. Anecdotal conversations with growers suggest the final tally may yet be reduced further given initial harvest results just now starting to come in -- and are deemed a disappointment.
A combination of above-average temperatures, dryness in some areas, excess moisture in other areas, above-average hail damage, disease and a few incidents of insect problems through the summer have all combined to take the edge off an otherwise bumper canola crop. Heat in July is likely to push oil yields one to two per cent lower than recent years for canola grown in Saskatchewan and Manitoba.
While Western Canada's crops have avoided the droughts of the U.S. Midwest, Russia and Eastern Canada, crop diseases like aster yellows and sclerotinia have whittled down the potential for canola.
Total Canadian wheat production on the Prairies is expected to reach 27.0 million tonnes in 2012, up seven per cent from 2011-12 to the highest level in four years. But this increase was generally anticipated with a big spring wheat crop of 19.1 million tonnes, though durum was a little smaller than expected at 4.3 million tonnes.
Traders will likely perceive crop size to increase as cereals are the best crop out there this year. Cash basis and carry-in deferred futures positions will moderate grain flow, a task previously moderated by the CWB.
Farmers are on track to harvest 3.0 million tonnes of oats this year. Oat supply will likely be sufficient to satisfy North American milling interests for the year ahead without wild independently driven price gyration. The oat market will remain a price trend follower of larger cereal markets, notably corn/wheat, but in sluggish fashion.
On barley, according to StatsCan there is a much bigger Canadian barley crop on tap than expected. Canadian barley production for 2012 was estimated in last week’s production report at 9.5 million tonnes. That’s up nearly 24 per cent from last year’s nationwide barley crop of 7.8 million tonnes, and easily exceeded pre-report trade expectations of 8.5 million to 9.0 million tonnes.
The big barley crop can be attributed to a record high average yield forecast of 64.7 bushels an acre, and an expected 17 per cent increase in harvested area to 6.3 million acres compared to last year. If accurate, this year’s barley yield would snap the previous record of 63.3 bushels an acre set in 2008.
That said, I don’t believe the feed barley market is going to fall steeply. If this year’s wheat production can maintain quality and remain priced as a "food" grain this year, a larger barley supply will be required for the coming year’s overall Prairie feed ration. The past two years we have seen a lot of wheat enter the feed ration. That might not be the case this year.
547,000 tonnes makes for a very small flax crop again this year, but near expectations coming into the report. More grind along for the flax market in the shadows of canola, which in turn is in shadow of soybeans, lagging due to a relatively abundant world vegetable oil supply.
Field pea expectations are at 3.0 million tonnes -- again, no surprise. However, supply situation is seen tightening this year. Once the "easy off the combine supply" is bought, and trade has to go to the bin for more, Vancouver and elevator prices should start the next leg up, but in deferred delivery positions.
Lentils are expected to come in at 1.3 million tonnes in Saskatchewan. Also near trade expectations, but a touch on the smaller side, though still offset by big old crop carry-in. The issue still is about timing of demand. We must remember many buyers are showing caution (smaller lines of credit and currency, for example). Nothing changes here regarding market outlook relative to former conviction. Demand comes in waves, but building to a strong base in time.
Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.