Huge carryover will be headache until 2015

CWB market analyst is particularly worried that large domestic and international oilseed supply could sink canola prices

Prairie farmers will feel the reverberations of last year’s large crop and the inability to move it well beyond this crop year, according to two new forecasts.


There has been plenty of talk about the looming carryout at the end of 2013-14, but it’s the following year that worries Neil Townsend, director of CWB Market Research.


In its latest supply and disposition report, Agriculture Canada is estimating 19.8 million tonnes of total grains and oilseeds carryout in 2014-15.


It would be the second largest ending stocks since Agriculture Canada first started producing the reports in 1982-83.


The only year that would beat it is the current marketing year, based on the estimate for 22 million tonnes of ending stocks in 2013-14.


Townsend has produced a similarly depressing outlook for 2014-15, even though he doesn’t usually look that far into the future at this time of year.


“The reason why I did that is that it shows the extent of the problem,” he said.


“It shows we’re still going to be exporting 2013-14 (crop) next year.”


In fact, this year’s oversupply issue could weigh on markets beyond 2014-15.


“Originally, I said we grew an 18-month crop. Now I’d say we probably grew a 24-month crop in terms of getting it worked through the system,” he said.


“When you add in the export problems, it’s like now we’ve grown a 30-month crop.”


Townsend’s carryout numbers are based on ambitious export estimates, given the current logjam in getting grain to the West Coast. 


“Any missed export slots because they don’t have the right grain out there or because they don’t have enough grain out there is going to add to the bottom line of those ending stocks numbers,” he said.


Recent weekly export numbers supplied by the Canadian Grain Commission make him increasingly nervous about the burdensome supply.


“The cumulative total is barely budging over the last little while from the West Coast.”


Townsend is forecasting 2.7 million tonnes of canola carryout in 2014-15, which is close to Agriculture Canada’s three million tonne estimate.


Townsend expects 11.8 million tonnes of all wheat ending stocks next crop year, which is well above the government estimate of 7.9 million tonnes.


He is projecting 2.9 million tonnes of barley carryout, which is quite a bit higher than Agriculture Canada’s 1.8 million tonnes.


Agriculture Canada also released its first acreage estimates for 2014. Canola leads the way, claiming 21.6 million acres of farmland, up eight percent from last year’s levels. 


Townsend has penciled in 19.5 million acres, but he thinks there is considerable upside potential because canola prices haven’t fallen as much as wheat prices.


He was struck by how every grower he polled at winter meetings said they intend to grow canola again this year.


“One thing you’ve got to be scared about is that (farmers) might plant more canola than they’ve ever planted in their lives,” said Town-send.


It’s partly why he is most bearish about the oilseed complex. Other factors include the potential for a massive South American soybean harvest, big soybean acres seeded in the United States and the distinct possibility that China will back out of previously announced soybean purchases from the U.S.


“That tail-end of the canola is going to be pretty ugly, so if you are planting canola because you like today’s futures prices relative to today’s wheat prices, well you better make sure you have today’s canola prices locked in,” said Townsend.


Agriculture Canada is forecasting 23.8 million acres of all wheat, down five percent from last year. Townsend believes it will be a slightly bigger crop of 24.4 million acres, but he agreed wheat is languishing.


“It looks like a dog and it’s behaving like a dog and people are looking for alternative choices,” he said.


Canada wasn’t the only big wheat producer last year. Russia recently sold 180,000 tonnes to Egypt.


“The last Black Sea region wheat to be sold to Egypt last marketing year happened in October. This year they’re still selling in January and selling in quantity in January.”


“We think there is a good chance in 2014-15 that wheat prices go below $5 a bushel on the futures side.”


Agriculture Canada is forecasting a seven percent increase in pulse and special crops acreage, while Townsend expects soybean acres to “go through the roof” in Manitoba.