Basis levels across Western Canada continue to tighten with the Canadian dollar recently appreciating back above $0.71 cents United States Dollar (USD). Granted, we have seen wheat prices improve a bit on the futures boards thanks to concerns over winter weather, Russian government intervention, and spring acres being lower, but it is not the massive catalyst needed to really push managed money out of their massive short position. We continue to see some solid demand numbers for canola as the lower Canadian dollar has helped exports, but domestic demand numbers also continue to impress with almost 750,000 metric tonnes crushed in December 2016, up 16 per cent from a year ago and 7.7 per cent from November 2015. With the strong pace, is there more upside left? Possibly, which is probably why Agriculture and Agri-Food Canada recently forecasted the 2016 Canadian canola acres at almost 21 million acres, which is the second largest area ever!
This would equate to an increase of about 3.6 per cent from 2015 and comes as a benefit of lower spring wheat acres, which are seen falling almost two per cent year-over-year to under 17 million acres (the lowest in the last five years). Also winning over area was durum, whose acres are ballooning to an eight-year high of almost six million acres (suggests more low $8.00 and $7.00 per bushel are on the horizon). Not a surprise to anyone but more pulses are also going in, with lentil acreage up 13 per cent to 4.45 million acres and peas up to a record 4.2 million acres. From a relative standpoint of the five-year average, this is a 50 per cent upgrade for lentils and a 28 per cent increase for peas. Soybean acres across Canada are also seen increasing by almost four per cent year-over-year to 5.62 million acres, whereas less corn is getting less attraction with acreage down 3.7 per cent to 3.15 million acres.
Across the border, Informa Economics is estimating that American farmers will plant a record amount of soybeans with 85.23 million acres getting seeded. This is still well above the next closest estimate of 84.2 million acres from Societe Generale, the previous record set two years ago of 83.3 million acres, and the United States Department of Agriculture’s current estimate of 82 million acres! On the corn side of things, Informa is calling for 88.9 million acres in 2016, similar to the last year’s number of 88 million (but still a far cry from the 1932 likely-will-never-be-broken-record of 113 million acres).
From a cash price perspective, the improved value of the Canadian dollar put a series damper on Western Canadian values. The most significant changes were seen in the wheat markets with basis dropping further on the news of the acreage estimates and futures values ticking up a bit, ending the first month of 2016 on the boards in the green. The question for me now is, will decent crops coming out South America trigger some alerts (slash changes) to the North American numbers? There’s still a few weeks left to go before those drills get pulled out of the snow!
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