That’s The Best You Got?
On Tuesday, August 23, the Statistics Canada (StatsCan) crop production summer update was released and, as generally expected going into it, things were bearish. The biggest surprise came in the form of the canola estimates of only 17 million tonnes in production, which would be a 1.2 per cent drop from last year, a full million tonnes from the pre-report estimate of 18.1 million, but still 5 per cent above the five-year average. In the past seven years though, StatsCan has underestimated their August canola production number versus the final they give out in December so, the “bullish” nature of the number was not really believed by the market. Regionally, Manitoba is expected to see its canola production drop about 8 per cent from last year to 2.6 million tonnes (but still up 7 per cent from the five-year average), Alberta at 5.4 million (-1 per cent from 2015, -3.4 per cent from the five-year average), and Saskatchewan taking off 8.9 million tonnes (+1 per cent year-over-year, +10 per cent from the five-year average). As mentioned though, everyone is asking if this is all the canola there is, given the wet weather and clear disease pressures like sclerotinia and blackleg.
For wheat, total Canadian production was estimated by StatsCan up 10.5 per cent from 2015 with 2.9 million more tonnes produced for a total number of 30.5 million tonnes. This is mainly thanks to a massive jump in winter wheat production, +53 per cent YoY or +1.2 million tonnes from 2015, with Ontario owning 1.1 million of that, and an even more impressive 1.4 million tonne increase in durum production to 6.8 million tonnes (+26 per cent YoY, +24 per cent from the five-year average). Looking at some of the other numbers, total Canadian flax production is pegged at 576,000 metric tonnes (MT) (-39 per cent YoY, -19 per cent from the five-year average), the Canadian oats crop is estimated at 3.26 million tonnes (-12 per cent, -8 per cent), total soybean production in the Great White North is estimated at 5.44 million tonnes (-6.5 per cent YoY but 6.7 per cent from the 5-year average) and corn output is expected to come in at 12.7 million tonnes (-9 per cent, -3 per cent) because of the drier weather in Ontario. Canadian barley production is estimated to come in at large 8.7 million tonnes, up 6 per cent from 2015 (and 4.7 per cent from the five-year average), mainly thanks to Alberta and Saskatchewan producing about 500,000 MT more than they did last year.
We have been bearish on mustard, field peas, and rye since the acreage report at the end of June came out. Apart from prices dropping since then, StatsCan’s estimates helped realized our expectations, calling for 250,000 MT of mustard, 4.6 million tonnes of peas, and 382,000 MT of rye, which, year-over-year, would represent increases of 44 per cent, 103 per cent, and 69 per cent. Yellow peas are dropping into the $6/bushel with some strong early yields and we think anything with a $7 in front of it is a decent price to lock in some price risk on. Mustard prices are hovering in the mid-30 cents/lbs but with production doubling and demand staying relatively flat, it is hard to justify upside arguments. Lentils continue to be a question mark on the quality front, and we have seen some decent low-to-mid 30s (per lbs) for small red lentils and mid-to-high 40s getting traded on FarmLead.com, but with a 3.2 million-tonne crop coming off, that’s a 36 per cent increase from last year and 40 per cent above the five-year average.
For cereals, the spread between malt and feed barley continues to widen, while oats values are sitting on the sidelines, stagnant as if they have been awake for a few months straight. Is there upside in either crops? Harvest pressures could be here for a bit unfortunately, much like they continue to linger in wheat. Week-over-week, hard red spring wheat prices in Western Canada dropped about a dime, mainly due to the futures market seeing some profits getting taken. Durum and canola also traded sideways to lower, as the crop gets closer to coming off, but we continue to be wary of disease pressures pushing things up. Overall, despite some inclement weather, grain production in Canada will be higher in 2016, and with global production also relatively high, but demand relatively unchanged, we will be forced to ask buyers is if this is all they can bid (and unfortunately, the answer will likely be yes for some crops for the next little while).
President & CEO | FarmLead.com