Can market devour record canola supply?

Some experts argue there’s nothing to worry about after Statistics Canada released a canola production estimate of 17.2 million tonnes.

They say booming domestic crusher and export demand will eat up the excess production so that the 2015-16 carryout will be manageable.

However, Errol Anderson isn’t buying that theory.

“I’m not as bullish on the use,” said Anderson, a commodity broker and president of ProMarket Communications in Calgary.

“I think we’re going to have a heavy carryout of canola.”

The government agency released its crop production estimates for 2015 Dec. 4, pegging canola production at 17.2 million tonnes, the second highest total on record and up from 16.4 million tonnes last year.

The figure was much higher than expected, considering that the average of grain trade analysts’ forecasts was 15.5 million tonnes.

Statistics Canada said strong yields in Saskatchewan and Manitoba propelled production higher. Saskatchewan growers posted an average canola yield of 36.5 bushels per acre, up from 33 bu. last year, according to the agency.

In Manitoba the average yield was 40.3 bu., an 11 percent increase from last year.

SaskCanola chair Dale Leftwich said the yield estimate is high. Excessive rain drowned out patches of canola fields in his region near Esterhazy, which put a cap on yields. He said most growers he’s spoken with have average to good crops, but few reported excellent yields.

The story is different south of Esterhazy. Sherri Roberts, Sask-atchewan Agriculture’s regional crops specialist in Weyburn, said most growers in the southeast reported canola yields of 40 to 45 bu. per acre.

“I haven’t heard anybody complain, at all, about their canola crop,” she said, adding the Statistics Canada yield average for Saskatchewan sounds correct.

Given the yield numbers, Anderson said canola stocks at the end of 2015-16 crop year might be higher than expected.

“I think we’re going to be about three million plus (tonnes) on carryout.”

Anderson isn’t convinced exports will use up the extra canola production. He expects the global economy to slow next year, particularly in Asia, which would reduce demand for commodities.

“Domestic crush demand is excellent right now, but we’ve got some real struggles in the global market,” he said.

“I’m just not in the camp that canola demand will eat this all up.”

Jon Dreidger, risk management portfolio manager with FarmLink Marketing Solutions, is more bullish on demand. Canola has rapidly moved into country elevators this fall, and the system is dealing with the influx.

“We’ve seen a lot of canola come (off farms)…. There’s been a lot of canola heating in bins. Growers have been aggressive sellers … instead of having it cake in their bins. The market has absorbed that reasonably well,” he said.

“We still do have good demand. Exports have been moving along at a good clip. The crush is running ahead of last year.”

The Canadian Oilseed Crushers Association said the crush to Dec. 2 is 2.66 million tonnes, almost 11 percent ahead of last year. Bulk canola exports to the end of November were 3.23 million tonnes, up 12 percent from last year.

Dreidger said the new, higher production number might take the top off prices this winter, but he’s not convinced the extra volume will cause cash prices to plummet or basis levels to dramatically widen.

“I think we will find a home for most of it,” he said. “I don’t think we’ll wake up at the end of the crop year and say, ‘holy cow, we’ve got this massive pile of canola.’ ”

Statistics Canada says year end canola stocks were 2.3 million tonnes July 31.

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