Canola prices, demand rosy; wheat not so much

The rising Canadian dollar is likely having a greater impact on Canadian crop markets than the final Statistics Canada production report of the year.

The agency’s crop size estimates issued Dec. 6 had no shocking discrepancies from what the trade expected.

There were minor differences from a pre-report survey of analysts, but not enough to significantly change the general assumptions about the amount of grain in Canada this year.

This was especially true this year because Statistics Canada maintained its usual schedule for the report and so was interviewing farmers about production in late October and early November when a lot of the crop was still in the field.

The agency consulted widely to try to keep its numbers relevant, but still, the credibility suffered because of the difficulty presented by the late harvest.

The canola production estimate of 18.4 million tonnes was about 400,000 tonnes less than the midpoint of a survey of analysts conducted by Reuters News Agency. It was just shy of the record 18.6 million tonne crop produced in 2013.

Even if the crop is closer to 19 million tonnes, demand is strong enough to keep the ending stocks number from becoming a burden.

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The domestic crush is smashing records, which is helping to make up for an export pace that is running a bit behind last year.

Statistics Canada said the canola yield was record large at 42.3 bushels an acre, but the harvested area was down 6.6 percent.

Canola futures fell last week as the loonie rose to more than US76 cents and as soybean oil came off recent highs. The loonie is rising with crude oil because OPEC has negotiated backing from Russia and other non-OPEC producers to support the OPEC production reduction with a cut of their own.

However, there remains skepticism that OPEC members will carry through on their targets. And even if they do, some question whether it will be enough to actually realign production and demand.

The economics departments of several Canadian banks forecast that the loonie will remain in the mid US70s or lower in the first half of 2017.

Statistics Canada’s spring wheat estimate came in close to the trade’s expectation. The wheat market is weighed down by ample world supply, although there is some support for grain with higher quality and protein. Canadian wheat exports are running well behind last year, likely because exporters struggle to blend the range of quality available into exportable shipments.

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The durum estimate at 7.7 million tonnes was about 500,000 tonnes more than the average of expectations.

However, that should have little impact on the price of milling durum because so much of this year’s durum crop was pushed down into the feed category due to fusarium and other degrading factors.

The report confirmed record large pea and lentil crops, and the estimates were close to the trade’s expectations.

Even with the large crops, prices for pulses have been well supported by the strong pace of exports.

However, the potential for trouble over the looming expiry of an exemption from India’s fumigation policy could slow pulse exports early in 2017, which could present a risk for unpriced peas and lentils.

Oat production at 3.15 million tonnes was a little higher than the average of pre-report forecasts but was within the range.

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As this column was written Dec. 12, nearby Chicago oat futures had rallied about eight percent since the Statistics Canada report. Corn was static in the same period, and the loonie rose, so it appears the trade believes oat supply will be fairly tight and deserving of a stronger price.