Grain markets trended higher to start the first full week of December before giving up some gains in the back half. On Tuesday, the StatsCan report was published, giving some bearish numbers, though the market was fairly relaxed about it. The market also seems fairly relaxed heading into the December World Agricultural Supply and Demands Estimates (WASDE), which will be published on Dec 12th.
Analysts are expecting to see bigger wheat and soybean ending stocks in the U.S. in the December WASDE, while corn carryout should tighten a bit. Everyone will be looking for adjustments to corn and soybean production numbers in South America. Argentina is starting to get a bit dry and there’s some real debate as to whether or not the USDA will acknowledge the conditions there.
Rains are falling in the major soybean growing regions in northern and central regions of Brazil. Conversely, multiple weather models agree that there’s practically no rain that will fall in southern Brazil or most of Argentina before mid-December. While you could argue that there are some bearish U.S. soybeans exports out there (hence the expected increase in ending stocks), the potential for a La Nina rally seems real.
The opposite of a rally happened in canola and spring wheat markets after Statistics Canada said there was more of each crop grown in the Great White North this year.
For canola, the market was expecting to see 20.2 million tonnes, which would have been a solid upgrade from the 19.7 million tonne satellite and data-based estimate in September. Instead, Statistics Canada showed us a record Canadian canola crop of 21.3 million tonnes, thanks to a 41 bushel-per-acre average yield and record 22.8 million acres harvested.
There are some analysts (including yours truly) who think that this canola crop could still get bigger yet. Based on StatsCan’s average underestimating of the canola crop, the final Canadian production number could be above 22 million tonnes.
Last year’s Canadian spring wheat crop came in at just under 20.5 million tonnes. This year, StatsCan had previously estimated 20.1 million tonnes of Canadian spring wheat in their September data and satellite-driven estimate. But on Tuesday, the number jumped to a whopping 22.2 million tonnes. That’s 8% better than last year’s crop and 3% better than the five-year average.
An average of 52 bushels per acre was harvested by the Canadian spring wheat farmer this year. That’s a 10% increase from the five-year average. Combining that yield with 16.6 million acres harvested, you can produce the best crop since the 2013 bumper crop of 27.3 million tonnes.
Canadian durum wheat yield numbers are down big time. An average of 35.3 bushels per acre was harvested by the Canadian durum wheat farmer. That’s a 16% drop from the five-year average and a clear indication of the stress that a drier year can put on yields. Considering that yield over 5.16 million acres harvested, that’s a production of nearly 5 million tonnes, when the market was expecting to see 4.6 million tonnes.
Rounding out the StatsCan December production estimates, barley production was pegged at an impressive 7.9 million tonnes. That’s higher than the 7.5 million tonnes the market was expected but still 7% below the five-year average of 8.5 million tonnes.
Canadian oats production was estimated this time at 3.7 million tonnes, slightly below the market’s expectations and September’s estimate. However, this crop is still 17% bigger than last year and 14% bigger than the five-year average. Not exactly bullish.
The market was expecting to see 14.1 million tonnes for Canadian corn production and 8.1 million tonnes of soybeans. Corn was right on the money, but soybean production was lowered to 7.7 million. Mind you, that soybean number is still 18% higher than last year’s crop and 31% higher than the five-year average! The soybean creep north is real!
The market was expecting to see 4 million tonnes of Canadian peas and 2.6 million tonnes of lentils. They were nearly right as StatsCan said 4.1 million tonnes of peas and 2.56 million tonnes of lentils. With the slower pace of exports though, it looks like Canadian pulse 2017/18 ending stocks will sit at new records.
Flax production was upgraded to 548,000 tonnes, which is better than the market’s expectation of 517,000. However, it’s still a 24% decline from the five-year average flax production number in Canada.
For a weekly perspective, the U.S. Dollar gained 1.1% on some stronger economic data, which as mentioned, weighed on grain prices. Oats was the worst performer, losing 7.3% for the week as the larger Canadian crop clearly was recognized in Chicago futures trading. Corn dropped 1.75% while soybeans fell 0.35% since the start of the week.
January canola only finished the week down 0.2%, holding up above $505 CAD/tonne. However, the March canola contract dropped to a seven-week low on the news that there’s more canola available than previously thought. Losses were likely limited by the weakness of the Canadian Loonie against the U.S. Dollar, as the former lost 1.2% this week.
For wheat, Chicago soft red winter wheat prices dropped 4.7%, while Kansas City hard red winter wheat dropped 4.5% for the week. Minneapolis hard red spring wheat lost 3.2%.
For canola prices, we’ll have to continue to monitor demand. We think that the market is likely going to take at least 20.5 million tonnes out of this supply. It could be as high as 21.5 million tonnes. For durum and spring wheat, it’s a similar story (watching demand), but exports will be a big factor.
We also have a report coming out from the USDA later this month regarding the number of abandoned spring wheat and durum acres that could be supportive of a rally. Between this and monitoring southern hemisphere crop conditions, we will also look for new pricing opportunities on either currency or weather premium pops. Thus, Statistics Canada’s numbers don’t mean much to the market (yet again).