Canadian production report review

Highlights

  • This report was neutral to slightly positive for the canola price outlook 
  • The discounted durum production forecast should give the market pause after prices retreated from their summer highs
  • The best cash oat pricing opportunity is likely four to six out when another miller reload is needed

Statistics Canada released its first farm-surveyed estimates of the season for 2017 Canadian crop production (13,300 farmers surveyed) on Aug. 31.

The agency forecast 2017 Canadian canola production at 18.2 million tonnes, midpoint of pre-report trade estimates. But that number will likely grow with subsequent reports. Backing up that opinion, StatsCan revised up its estimate of the previous year 2016 canola crop by 1.2 million tonnes to 19.6 million tonnes.

This report is seen as neutral to slightly positive for the canola price outlook. After all, anything below 19 million tonnes on the 2017 crop still suggests a trend towards eroding year-end carryout given continued strong demand expectations.

Canola remains a sideways, rangebound market that will be subject to one to two month waves in one direction then the other.

But the supply rationing process does not have to occur all at once, or even right now. Should yield assessments rise in subsequent reports it lessens the need for a dramatic price response. Harvest price pressure typical of September will limit gains for now, despite a still constructive longer term bias.

Canola remains a sideways, rangebound market that will be subject to one to two month waves in one direction then the other.

Wheat

Perhaps the most dramatic result on the report was for durum. Pre-report ideas pegged the 2017 crop at 4.5 million to 5.3 million tonnes, but StatsCan estimated the crop to be 3.9 million. That compares with last year's crop which was 7.8 million.

This report highlights the depressed opinion that growers expressed throughout southern Alberta and Saskatchewan over their durum crops during the height of the hot/dry period around the end of July.

But PFCanada believes this will be the lowest durum crop estimate of the year and we are likely to see revisions higher in time. That’s not to suggest there were no problems with the durum crop this year. Most certainly there were, but early harvest reports suggest crop results a touch better than initially feared. With such a discounted production forecast though, it should give the market some pause after prices retreated from their summer highs.

StatsCan pegged all-wheat at 25.5 million tonnes, compared to trade estimates of 22.8 million to 27.8 million. Last year the crop came in at 31.7 million tonnes. A large measure of that decline is attributable to durum.

Minneapolis spring wheat futures were and continue to face selling pressure since establishing highs in early July. Traders have been dumping their long spring/short winter wheat futures spread positions, and in the process, shrinking what is still a large spring wheat premium over the other wheats.

Harvest results in Western Canada have so far been pretty good in many areas. The Canadian wheat crop estimate will almost certainly rise from this latest StatsCan estimate.

Oats

StatsCan’s oat crop peg at 3.685 million tonnes was above the highest trade ideas, and consequently not a bullish result. We continue to hear good - in some cases exceptional (Manitoba) - yield as harvest continues to roll. Many within the trade already anticipating higher production ahead of this report, but this number still nipped at Chicago oat futures.

I suspect the best cash oat pricing opportunity is likely four to six months out when another miller reload is needed.

Pulses

On lentils, the StatsCan number was 2.3 million compared to last year's crop of 3.2 million. The lentil number came in lower than expected, with trade ideas up closer to 2.75 million tonnes.

But it is important to remember that the current market outlook is not driven by Canada supply issues. Rather demand, or the lack thereof for the moment, is the real market driver. I suspect that condition will improve as the marketing year progresses. However, farmers here in the near-term seem ready to push newly harvested supply onto the market rather aggressively, which suggests red lentils are headed for 20 cents sooner than later.

On peas, StatsCan production pegged at 3.8 million tonnes, about midrange with trade expectations, but is probably destined to rise to 4.0 million tonnes or slightly more in time.

Like in lentils, whatever the pea crop size here, that is not the key factor influencing market price. Rather it's the sluggish demand profile of the current offshore market intertwined with aggressive offshore export competition, notably today from the pace of Russian selling.

That said, Canada will have no problem moving a four million tonnes pea crop size this year, but demand isn’t as exclusive, nor do importers lug the same urgency to chase as in other years.

Bottom line

We expect Canadian crop production estimates released by Statistics Canada to increase as the season progresses. 

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.