Smaller harvest good for basis levels

Statistics Canada has verified that Western Canada won’t be producing 2013-like bin-buster crops.

Not that it matters.

Markets were mostly unaffected by the agency’s first production report of the 2014-15 crop year, released Aug. 21, apparently shrugging off the numbers. As well, canola futures moved opposite from what the bullish estimates suggested.

“It’s not a good response,” Pro Market analyst Errol Anderson said about canola futures slipping despite Statistics Canada estimates that Canada will produce 13.9 million tonnes of canola this summer, well beneath the average trade expectation of about 14.5 million.

“It suggests we haven’t seen the low yet.”

The federal agency also estimates that farmers will produce 19.72 million tonnes of spring wheat, 4.95 million tonnes of durum, 7.16 million tonnes of barley, 5.9 million tonnes of soybeans, 3.56 million tonnes of peas, 2.64 million tonnes of oats and 1.93 million tonnes of lentils.

For oats and barley, that’s at least a 30 percent reduction from last year. Canola and wheat are more than 20 percent lower than last year’s production final numbers.

Lentils are slightly higher than last year.

Flax, dry beans, mustard and sunflowers are also expected to rise dramatically, with the latter three all rising by more than 43 percent.

Traders and analysts already ex-pected those increases.

However, the 27 percent increase in flax production surprised analyst Chuck Penner, who was puzzled by Statistics Canada’s decision to leave flax acres unchanged, even though the main production zone contains many areas flooded in early summer. It will be a problem for prices if acreage is really as good as Statistics Canada believes.

“If there is actually 900,000 tonnes of flax out there, that market is looking quite a bit heavier,” said Penner.

Oats and barley, down 32 and 30 percent respectively, should have tight supplies, so the report helped shore up those crops’ outlook.

However, the status of the U.S. crop will now be the main impact on prairie crop prices, unless there is a major Canada-specific weather event.

Whether Canadian production in the big crops moves a few percent one way or the other matters much less than U.S. soybean and corn production, analysts say. That’s probably why canola fell Aug. 21 despite the bullish Statistics Canada number.

Weakness in soybean oil on world markets was a bigger deal than a few hundred thousand acres in Western Canada that day, and overall soybean and vegetable oil crop dynamics will rule the winter as long as much of the 2014 crop still sits in farmers’ bins.

“If the beans (end up) down below $10, who cares (about canola specifics),” said Anderson.

“The U.S. is trumping us.”

Same with world supplies of cereal crops. The U.S. corn crop and Eurasian supplies will dominate the pricing for those commodities, analysts say.

While the Statistics Canada production report didn’t visibly move markets or challenge many expectations beyond being mildly bullish, its verification of smaller crops offers hope for farmers looking for better crop movement opportunities and better basis levels this winter.

The gigantic 2013 crop still squats over the western Canadian grain handling system, but once it and off-the-combine sales clear, buyers might have to work harder to bring in the rest of the crop. Basis levels from January onward are already reported to be improving.

“Maybe in the end we won’t see it register in futures (prices) so much for oats, wheat or canola, but we might see it in the basis levels, and not until later into the year,” said Penner.

He said the lack of response to the report is also partly because traders and analyst expect that Statistics Canada will have to boost its production numbers in following reports.

The canola production number has been boosted by more than three million tonnes in recent years.

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