Strong demand will eat new crop supply

Ending stocks will dip | Some analysts expect the carry-out to be almost half of last year

The weather has made the job a bit tougher, but there’s nothing to derail the belief that Canadian grain stocks won’t be a problem by the end of the crop year.

Buyers might even start feeling a bit anxious about getting supplies of some crops.

“There’s some for sure: oats and canola. That’s two of them,” said Wild Oats newsletter editor John Duvenaud about shrinking supplies of prairie crops.

This year’s harvest is expected to be much smaller than last year but demand is expected to be good.

“Canola’s going to be pretty tight.”

That assessment holds through the prairie grain industry, with the residue of the huge 2013-14 crop still being sold, but smaller new crop supplies expected to meet healthy demand through the year.

Analysts say ending stocks won’t just be lower than average for recent years but will be substantially lower than average when considered against growing demand.

“I think for most crops, we’ll see quite tight stocks by the end of the year,” said Chuck Penner of Left Field Commodity Research.

“I’m confident export demand will be quite strong. There will be lots of demand for quality product.”

Stocks at the end of 2013-14 were bloated, but Agriculture Canada in its Sept. 18 Outlook for Principal Field Crops forecasts stocks will be down by almost half at the end of 2014-15.

“Carry-out stocks are expected to decrease by 43 percent from the 2013-14 level,” says the report.

Analysts say canola will be particularly affected by increased demand. The domestic industry is crushing seven million tonnes per year, which is 11 percent more than in 2012-13.

Exports in 2013-14 were up 23 percent from the previous year to nine million tonnes, and that momentum should carry through 2014-15, Duvenaud thinks.

“It’s hard to turn usage off,” said Duvenaud.

Oat demand is good and production is down, giving that crop a relatively strong pricing position.

Barley production is down, but feed barley is facing a challenge from the mountain of feed grains the Prairies have produced this year because of bad weather.

“There will be a premium for barley, but there’s a limit to how much that will be because feed grains are easily substituteable,” said Jon Driedger of FarmLink Marketing.

The year end stocks of Canadian lentils, oats, canola and durum all will be down and normally that is bullish for prices but markets will be weighed down by huge U.S. soybean and corn crops and a large world wheat crop.

“That’s what’s dragging us down across the board,” said Driedger.

Farmers will also be marketing a crop that has major portions below the top quality grades, making it more difficult to sell, handle and obtain good prices for them.

However, farmers should be able to move their crops because the transportation system is unlikely to be overloaded this year.

“Ending stocks are not going to be that heavy across our major crops,” said Driedger.

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