Market Insider

Unfounded Comparisons?

Grain markets got through the first week of December slightly higher as South American weather, new production reports, and export sales lead the bullish charge from harvest lows six weeks ago. Hedge funds continue to get longer on soybeans and hard red winter wheat as traders are watching drier conditions in south and eastern provinces of Argentina and the United States (U.S.) Southern Plains as it relates to these crops respectively. This week has been mainly characterized though by reports as we have already seen new numbers from Australia and Canada, but are awaiting the December World Agricultural Supply and Demand Estimates (WASDE) report from the U.S. Department of Agriculture (USDA). Palm oil continues to find support from smaller-than expected Southeast Asian production, but expectations are that imports are down as international vegetable oil buyers are substituting for other options (i.e. canola or soyoil) as they find palm oil prices unfounded compared to the alternatives!

The Australian USDA, the Australian Bureau of Agricultural and Resource Economics and Sciences (ABARES), came out this week and announced a record winter crop in the land down under of 52.4 million tonnes of grain, a 32 per cent jump year-over-year and six million tonnes more than their September estimate! This includes record Aussie wheat production of 32.6 million tonnes, up 4.5 million tonnes from the September estimate and 35 per cent higher than last year’s crop (the previous record was 30 million tonnes grown in 2011/12). Total Aussie oats production is expected to come in at 1.8 million tonnes, a 38 per cent jump over last year and 42 per cent above the five-year average, while barley production out of Australia is pegged at a record 10.6 million tonnes (up 24 per cent year-over-year, 1.1 million tonnes from the September estimate, and 1 million tonnes higher than the previous record two years ago). Finally, the Australian canola crop is now forecasted to be the third largest ever on record at 3.6 million tonnes, up 22 per cent year-over-year, while total chickpea production is expected to come in at 1.25 million tonnes, a new record.

Conversely, StatsCan’s crop production estimates this week suggested that this year’s Canadian chickpea crop is just 75,200 MT (-40 per cent from the five-year average), whereas we saw production records of 3.25 million tonnes of lentils (+28 per cent year-over-year, +64 per cent from the five-year average) and 4.84 million tonnes of peas (+51 per cent, +44 per cent). Both these numbers were expected, but what was not was the difference between seeded and unharvested acres, despite some huge wheat and canola numbers. Although StatsCan admitted 1.29 million less acres of wheat would be harvested than what was seeded, and similarly, 1.16 million acres of canola, 31.7 million tonne and 18.4 million-tonne crops are quite large. For canola, this would suggest a record 42.3 bu/ac average yield, despite harvested acres being down 6.6 per cent year-over-year to 19.2 million. On wheat, harvested acreage was down 7.3 per cent from last year to its lowest in 5 years at 21.9 million acres, but average yields jumped 24 per cent from 2015 to 53.2 bu/ac. Getting deeper into wheat, total durum wheat production came in at a monster 7.76 million tonnes (+44 per cent from last year and 50 per cent above the five-year average), including 6.18 million tonnes from Saskatchewan (+35 per cent, +40 per cent) and 1.58 million tonnes from Alberta (+94 per cent, +113 per cent). 

For other cereals, barley production is up to 8.78 M tonnes (+7 per cent, +6 per cent), oats output is down a bit to 3.15 M tonnes (-8 per cent, -3.5 per cent), while triticale and rye production soared in 2017 to 53,900 and 408,600 MT (+117 per cent and 81 per cent higher year-over-year, respectively). Rounding out some of the less-popular crops, there is expected to be 119,800 MT of canaryseed this year (-19 per cent year over year, -12 per cent from average), 54,400 of faba beans (-33 per cent, -43 per cent), 233,900 of mustard (+90 per cent, +61 per cent), and 229,000 MT of beans (-6 per cent, -1 per cent). From a cash grain price perspective, we are seeing canola basis widen a bit with a stronger Canadian dollar as of late (thanks oil prices), but futures losses week-over-week clipped any major gains, with new crop values spreading lower versus last week. Wheat prices in Western Canada have traded sideways to lower as bearish production news paired up with some lower futures values, albeit we continue to hear about $7 unit trains for higher quality hard spring wheat getting loaded. Overall, we are heading into a time of the year where prices can often experience a “Santa Claus” rally, but given the large supplies of grain out there compared to years past, expectations of how far a rally can run up may be slightly unfounded this time around.

To growth,

Brennan Turner
President & CEO |