Who Owns All The Grain?
This week, Statistics Canada came out with their estimates of available grain still left in Canada for the 2016/17 crop year. At first glance, canola numbers were low, durum numbers were high, and there’s a lot of barley still available.
On wheat, the market was expecting 6 million tonnes of all types, but StatsCan served up a bit of a bearish number at 6.865 million tonnes. It’s also about nearly 18% below the 5-year average. At the end of the past five crop years, Canadian farmers have owned about 43% of all total wheat inventories at the end. This year, it's just 35%, meaning commercials own product that usual to end 2016/17. In Alberta specifically, farmers are still holding on 730,000 MT of wheat. This is 16% lower than what Alberta producers normally hold at the end of the marketing season.
The bigger surprise is that Alberta farmers are holding onto 180,000 MT of durum wheat still. This is a 500% increase from last year and nearly 600% above the 5-year average. Across Canada, available durum stocks in Canada jumped nearly 70% year-over year to 1.86 million tonnes. That’s also 45% higher than the 5-year average. From a holdings standpoint, Canadian farmers still have a lot of durum in the bin. Specifically, over the past five years, they've usually had only 443,000 MT left in the bin by the end of July.This year it’s 980,000 MT. This means farmers are holding onto more than 50% of total available Canadian durum supplies, instead of the 35% they usually do. I still think that there's upside in durum prices but, upside potential will be limited by old crop carry over trying to earn a premium.
There’s certainly lots of barley also carrying over into the 2017/18 crop year in Canada. The market was expecting 1.8 million tonnes, but StatsCan delivered a 2.1 million-tonne handle. That’s 47% above last year and 56% more than the 5-year average! For other crops, total available oats are sitting at 690,000 MT (-33% year-over-year, -12% from 5-year average) while there’s still 135,000 MT of rye available (+225% YoY, +300%. Yes, these numbers are accurate). Available flax inventories of 191,000 MT are more than 40% above what’s usually seen at the end of a crop year, but it is a 31% drop year-over-year. There are also 301,000 MT of peas still available in Canada (+73%, -7.4%) and 405,000 MT of lentils (+455%, -21%).
Canola stocks in Canada dropped to a four-year low of 1.35 million tonnes. This is down 25% from the 5-year average. Average pre-report guesstimates were for 1.5 million tonnes. Accordingly, giving the diminished potential of this year’s Canadian canola crop, many farmers are optimistic about better prices. I would also say that I'm in that camp, but there's an interesting fact in the numbers this year: farmers are holding on to a lot less canola than in years past. Specifically, only 430,000 MT of canola was still left in Canadian farmers' bins by the end of July 2017. This amount is 52% lower than what is normally held by farmers to end a crop season. Digging deeper, the allocation of canola stocks at the end season is usually a 50-50 split between farmers and commercials. However, going into 2017/18, commercials are holding more than 2/3s of all available inventories (basically a similar story to total wheat stocks allocation)
There are two possible scenarios here that play out: It may suggest that the commericials’ willingness to bid up for more canola supply may be suppressed in the short term. Conversely, because they still own an absolute amount of about 918,000 MT or just 2% above what they normally have at the end of the July, buying will continue. My conclusion: it's business as usual, but you certainly should not expect better basis for canola prices in the short-term. Nonetheless, with the International Grains Council recently raising their estimate of Canadian canola exports to 11.1 million tonnes for the 2016/17 crop year, we should expect that sort of demand to consistent in 2017/18, meaning higher canola prices.
“How high?” is the next question to be answered.
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