Holding out tough

Recently, Statistics Canada came out with its production estimates from this year’s crop and surprised the heck out of a lot of analysts


Recently, Statistics Canada came out with its production estimates from this year’s crop and surprised the heck out of a lot of analysts with their numbers for canola and wheat. 15.56 million tonnes of canola were said to be taken off, almost 1.5 million tonnes more than September’s estimate and almost one million tonnes higher than the average estimate from analysts. As for wheat, 29.3 million tonnes of the cereal was seen as harvested this year, up 6.5 per cent from the previous estimate and 1.5 million tonnes higher than the average trade guess. Durum and oat output were both bigger than the trade was expecting at 5.2 million tonnes and 2.9 million tonnes respectively but many are questioning the quality of the crop (good milling specs for wheat and weight on oats). Soybean production was another bright spot for the Canadian agricultural sector as we saw the fifth straight year of record production of the oilseed (as if there’s not enough already available worldwide!) The question really becomes now moving this crop and although wheat shipments have been relatively strong, there is concern over the additional canola supply available. Simply put, the cashflow situation come spring-time could be interesting on most farms as bin doors stay shut with canola remaining below $9.50/bu (although lower oil prices should help some!)

Speaking of oil, recent ethanol production data shows that processors continue to pump out the biofuel at a record rate, despite its rare premium to traditional gasoline. The real driver for the ethanol market though is likely on the export side – demand is up more than 40 per cent year-over-year, pushing prices higher than gasoline in some domestic markets, yet, because of the large amount of cheap corn available, costs of production in America have declined. Ultimately though, the premium that ethanol is currently enjoying over gasoline is unsustainable, alas, corn sellers are enjoying the level of support ethanol is providing as the most recent U.S.D.A. W.A.S.D.E. report showed 2014/15 ending stocks being revised to just under two billion bushels. The report also forecasted the global wheat carryout to be two million tonnes higher at 195 million tonnes. For soybeans, U.S. ending stocks were dropped to 410 million bushels thanks to export sales remaining strong but the South American crop is looking good and that will put negative pressure on the oilseed. The big question in reality is what will China do in terms of consumption though as they consume more than 60 per cent of all world soybean exports. With Chinese crushers looking at their 5th straight year of negative margins, and with signs that the Chinese economy is slowing, new programs may be put in place over the next few years to protect domestic interests.

Staying in the oilseeds and Asia, India’s production of rapeseed (canola) oil could fall by 10 per cent in 2014/15 as total production is expected to fall to seven million tonnes this year, a drop of over five percent year-over-year thanks to planted acres falling by six per cent to 16.6 million acres (comparably, Canada planted about 20 million acres of canola in 2014/15). In reality, this could be a good opportunity for more canola or canola oil to reach India but there will be tough competition from Europe and Australia, as well as other vegetable oils, namely soybeans, so expectations for Canadian supply moving in there could be tough.

To growth,

Brennan Turner

President, 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 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).