Surprises, surprises

This week's FarmLead looks at higher than expected crop production.

Statistics Canada came out on Friday, December 4th with another whopper of a production report, blasting away market expectations by pegging this year’s Canadian canola crop at 17.2 million tonnes, an increase of almost 4 per cent from last year and the 2nd largest on record after 2013’s monster. The market was expecting a number around 15.6 million tonnes, but with average yields in Western Canada climbing 9 per cent year-over-year, the market shifted almost 25 cents/bushel lower after the report. It’s more than likely though that the private trade was expecting something with a 16-million tonne handle, so with a lower Canadian Loonie and higher soyoil prices, canola surprisingly only ended 0.4 per cent lower on the day of the StatsCan report and have since returned to their pre-report levels.

Total wheat production was pegged at 27.6 million tonnes, again well above the 26.7 million guesstimated ahead of the report, but smaller than 2014’s 29.4 million tonne crop. This included almost 20 million tonnes of spring wheat and 5.4 million tonnes of durum, which is almost 15 per cent higher than the 5-year average production number. The Canadian soybean crop was bigger for the 7th consecutive year at 6.2 million tonnes while corn production was up 18 per cent year-over-year to 13.6 million tonnes, thanks to a record average yield of 170 bu/ac in Ontario.

Canadian barley production was also bigger at 8.2 million tonnes versus the 7.6 million expected and 7.1 million produced in 2014, but that’s generally in line with the 5-year average production number. As for the pulse and specialty crops, most results came in line with pre-report estimates with 942,000 MT of flax (+8 per cent year-over-year, +62 per cent from the 5-year average), 3.2 million tonnes of peas (-16 per cent YoY and -4 per cent from the 5-year), 2.4 million tonnes of lentils (+19.4 per cent YoY and 26.7 per cent from the 5-year and you can probably expect that number to climb in 2016). For the mustard crop, 123,000 MT was taken off (-37 per cent YoY, -21.2 per cent from the average), 84,000 MT of chickpeas were harvested (-32 per cent YoY and -37.5 per cent from the 5-year average but that’ll likely be made up by the aforementioned Aussie crop), and 149,000 MT of canaryseed (+19 per cent YoY and +8 per cent from the 5-year average).

Overall, the market continues to be in a net short position on the futures board (except for soyoil) so the fundamentals generally remain bearish in Chicago. However, currency effects are playing a significant role today, which is exactly why the USDA’s attaché in Buenos Aires, Argentina believes that any major sales of crop by producers there will be limited by further depreciation of the Argentinian peso under new President Macri. Conversely, demand of Canadian exports will likely be higher year-over-year, helped push out the bigger-than-expected crop that StatsCan says was produced in one of the weirdest growing season the country has ever seen. Thus, the sway in the market in the near term for cash prices will likely be moved not so much by supply/demand, but the competiveness of the Canadian Loonie relative to other currencies.

To growth,

Brennan Turner

President and CEO

FarmLead.com

Brennan Turner is originally from Foam Lake, SK, where his family started farming the land in the 1920s. After completing his degree in economics from Yale University and then playing some pro hockey, Mr. Turner spent some time working in finance before starting FarmLead.com, a risk-free, transparent online and now mobile grain marketplace (app available for iOS and Android). His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (b.turner@farmlead.com) or phone (1-855-332-7653).

 

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