Are canola stock forecasts overstated?

Some farmers sold out | Basis levels are narrowing which means buyers are competing for supply

Brian Voth has a nagging feeling there is not as much canola in the system as Statistics Canada is reporting.

In its latest stocks report, the agency said nine million tonnes were stored on farms or in the hands of grain handlers as of March 31, double what was around a year ago and 2.1 million tonnes higher than the previous record set in 2010.

Yet when Voth talks to growers, he hears that many are cleaned out or have little on hand.

Something doesn’t add up.

“That’s what we’re trying to figure out,” said the senior market adviser with Agri-Trend.

“If there is nine million tonnes of canola, where is it all?”

He is confident little canola remains in southern Manitoba, western Manitoba and eastern Saskatchewan.

“I know that Agri-Trend clients don’t have much or any canola left. Even talking to non-clients, it doesn’t seem like there’s a lot left out there either,” said Voth.

Statistics Canada’s number suggests only half of last year’s production was moved off the farm during the first eight months of the year.

Voth’s suspicion that supplies are not as plentiful as the government says is bolstered by recent market activity.

As of May 12, the May futures contract was at an inverse to the July and November contracts, and the July contract was approaching the same relationship with the November contract.

Meanwhile, basis levels have been narrowing across the Prairies.

“It all means that buyers want to buy canola right now and they’re having to bid it up to do so,” said Voth.

He believes either Statistics Canada’s 2013-14 production number was too high or its usage figure is too low. He suspects it is the former.

“I would say that there is a possibility that Statistics Canada was too high. Realistically, their track record is not that great,” said Voth.

Brenda Tjaden-Lepp, chief analyst of FarmLink Marketing Solutions, thinks the answer is not that straightforward.

She thinks it has a lot to do with this year’s unusual rail movement, which is starting to get back on track.

“Canola is the main beneficiary of improved transportation capacity,” she said.

“(Grain) companies are obviously choosing to make canola a priority.”

Tjaden-Lepp believes there are regions where stocks are plentiful and areas where canola supplies are depleted, depending on rail service.

Voth said that could be true. There may be more canola on farms in northern Saskatchewan and the Peace region of Alberta, where farmers rely more on rail service to move their crops. However, it wouldn’t be enough to account for nine million tonnes of stocks as of March 31.

“Something doesn’t add up here because we’ve got a lot of demand that (grain companies) can’t fulfill, it seems,” he said.

Kelly McIntyre, northern Peace director for the Alberta Canola Producers Commission, said there are definitely excess stocks in the Peace River region.

“I would say there is more on farm right now than normally. Certainly on my farm there is,” he said.

“Going into the winter, prices were poor and so I think a lot of people tried to market for cash flow only and not to go overboard.”

Voth said the stocks conundrum is causing Agri-Trend to rethink its carryout estimate. The company started with 2.2 million tonnes, went as high as 3.5 million tonnes during the rail crisis and has now dropped to about three million tonnes.

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  1. Edward on

    Any time stocks can be over stated to keep farm gate prices down, they will be. The theft will be rationalized and numbers reconciled later in the year. Repeat next crop year. Any grain broker that denies this is happening is with the thieves, quite obviously.

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