Declining production expectations pushing market prices higher

This spring, producers in North America completed planting well ahead of the five-year average. And, due to the possibility of another very large crop, downward pressure was placed on markets. This was a benefit for livestock producers as feed costs declined and their margins improved.

However, recent weather issues across North America have resulted in a shift in the market leaving a great deal of uncertainty for producers and the marketplace.

In Western Canada, multiple weather issues ranging from well below average precipitation to frost have reduced expectations of crop and hay yields. Very dry conditions are taking a toll on crop development, with most of Alberta and Saskatchewan receiving less than 60 per cent of normal precipitation since April 1. Late frosts across the Prairie provinces resulted in significant damage to canola crops forcing many producers to reseed in Saskatchewan and Manitoba (some estimates exceed one million acres).

While Western Canada has been impacted by a number of events, the dry conditions are having the greatest impact. Preliminary market estimates indicate that production will be 20 to 30 per cent lower than the five-year average. If this is accurate, this would result in a canola crop of between 10.4 and 11.8 million metric tonnes and a spring wheat crop of between 14.1 and 16.1 million metric tonnes.

The dry conditions aren’t just a concern for grain and oilseed producers. Dry conditions have also caused a deterioration of pastures and poorer hay crop, which has led to tighter feed supplies and higher feed costs. According to provincial crop reports, the first cut of hay in Alberta and Saskatchewan is far below average.

In the U.S., many regions have received excessive rain causing flooding and extensive crop damage. There are some pockets of Eastern Canada that have also received too much rain causing some flooding and delays to field work. Production is expected to be lower in both Eastern Canada and the U.S. Preliminary market estimates are for as much as a five per cent reduction in corn yields south of the Canadian border.

As a result of the weather issues in North America, prices have increased approximately 15 per cent since the April lows. However, these are just preliminary estimates and there is no way to verify the impact until the end of the crop season.

Craig Klemmer, Senior Agriculture Economist