Excess stocks outlook washed away

While the United States is toying with the idea that it will produce another record crop in the Midwest, the chance of Western Canada posting a repeat record was eliminated by the torrential rain on the June 28-29 weekend.

The talk of a few months ago of burdensome grain stocks being a lingering problem at the end of 2014-15 is fading.

Much of the eastern half of the Prairies has excess rain. There is still great production potential in places across Western Canada, but the region’s average yields will suffer and an as yet to be determined number of acres that were seeded won’t be harvested.

Let’s look at canola. Agriculture Canada in June forecast a harvested acreage of 19.56 million acres. Its yield forecast was 33.2 bushels an acre, a little more than the 10 year average and a little less than the five-year average. Those assumptions produced a crop forecast of about 650 million bushels or about 14.75 million tonnes.

It expected a carry in of three million tonnes for total supply of 17.875

It forecast that exports will be steady at 8.5 million tonnes and domestic use would rise 500,000 tonnes to 7.5 million, for total use of about 16 million tonnes.

That led to an ending stocks forecast of 1.7 million tonnes, which would be more manageable than this year’s three million, but still above the recent experience.

But exports and domestic crush are going gangbusters this summer and we might wind up with a carry out closer to 2.7 million tonnes.

If you knock the harvested area forecast down by one million acres to 18.56 million and the average yield assumption down just one bushel to 32 bu. per acre you get a crop of 594 million bushels or about 13.5 million tonnes.

Add in the 2.7 million tonne carry in and you have total 2014-15 supply down around 16.2 million tonnes.

You wouldn’t be able to have total use of 16 million tonnes anymore.

There are a lot of numbers and assumptions here, but it looks to me that stocks at the end of 2014-15 could be back down well under one million tonnes.

That’s bullish, at least to the extent that the Canadian stocks situation would no longer be a burden.

But prices are determined in the context of global oilseed production and demand.

And any price optimism is dulled by the prospect of a record large U.S. soybean crop and the prospect of another huge South American soybean crop benefiting from the rain that could result from a mild El Nino.

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