Canola disappearance error found

Grain commission says incorrect reporting by ‘primary licensees’ is behind the significant increase in domestic disappearance

A major correction in the Canadian Grain Commission’s Grain Statistics Weekly report may have analysts rethinking the market advice they were issuing to farmers.

According to the Week 22 report, there was 4.86 million tonnes of domestic disappearance of canola as of Jan. 5, 2020. That is a staggering 1.04 million tonnes ahead of the same time last year and had many observers scratching their heads.

Crushing canola is a profitable business these days. Crush margins are about double what they were a year ago, according to the ICE canola board crush margin index.

However, many analysts were under the impression that Canada’s canola crushers were already operating close to full capacity heading into the 2019-20 crop year.

How could they be crushing an additional one million tonnes of the oilseed?

It turns out they weren’t.

“There was erroneous reporting by primary licensees,” said CGC spokesperson Remi Gosselin in a Jan. 13 interview.

“Domestic disappearance numbers are definitely going to be lower. It’s just that I don’t know by how much.”

Jim Everson, president of the Canola Council of Canada, was able to shed light on the situation.

“We’re about 300,000 (tonnes) ahead in terms of crush from last year,” he said.

“I don’t know why those (CGC) numbers are not accurate but I would say they’re not.”

It is difficult to know exactly what the real crush number is since the Canadian Oilseed Processors Association discontinued its weekly crush report as of January 2018.

Everson’s estimate would suggest domestic disappearance would have to be reduced by about 700,000 tonnes in the Week 23 report, which includes data up to Jan. 12, 2020.

Domestic disappearance is a catch-all category for balancing the CGC’s supply and demand numbers.

“When we don’t know where things are going they get put into domestic disappearance,” said Gosselin.

“If they’re not exported out of terminals they’re going to crush plants or who knows where else.”

The CGC was still struggling to piece together what happened to put the domestic disappearance number out-of-whack as of The Western Producer’s production deadline.

The working theory was that primary elevators over-estimated how much canola was shipped to terminal elevators, so that number could be shrinking in addition to the domestic disappearance number.

“We think the mistake started in Week 19, just before the holidays,” said Gosselin.

Domestic disappearance jumped 513,300 tonnes to 4.21 million tonnes that week.

That is when the number caught the attention of analysts like former Western Producer markets editor D’Arce McMillan.

In last week’s Market Watch column, McMillan noted that domestic disappearance was up an “amazing” one million tonnes over last year, making Agriculture Canada’s 2019-20 forecast for an extra 500,000 tonnes of domestic demand appear ultra-conservative.

McMillan noted that if domestic processing continued to outperform for the next seven months of the crop year it would help offset the weakness in exports and could draw down carryout to 300,000 tonnes or less.

That would be well below Agriculture Canada’s estimate of a burdensome 3.5 million tonne carryout.

A carryout of 300,000 tonnes would have a tremendous uplifting impact on prices. However, McMillan’s forecast was based on an erroneous domestic disappearance number.

Other analysts, some who may have doled out similar advice to their clients, may be revising their marketing strategies once the CGC’s updated numbers are released on Jan. 16.

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