The large crops that producers are expected to harvest aren’t expected to flood the market — with the exception of oats
Farmers smile if they see big, good quality crops growing in their fields.
But some can furrow their brows if they see everybody around them also growing big, good quality crops.
Especially with Canadian production dominating some crops’ global supply-and-demand dynamics, big crops can bring woe to new crop prices.
However, farmers this year don’t need to be too worried about flooding the markets except with oats, says Bruce Burnett of Glacier MarketsFarm.
“The large crops, even in crops we dominate, are not going to necessarily move prices dramatically,” said Burnett, one of Canada’s most experienced assessor of the connection between mid-summer crops with new crop markets.
Canada is the most important exporter of many pulse crops and durum, as well as dominating North American production of oats and being a key exporter of spring wheat. Canada is also the most important exporter of canola seed and oil.
All those crops look good right now, with most growing areas enjoying good conditions.
While Western Canada’s main crops have a generally good outlook, oats is the exception. This year has a large acreage, the crop is doing well, and Canada’s crop completely dominates North American production and consumption.
It also has limited markets, with a finite food market, a stagnant horsefeed market, and a residual feedgrains market.
“The combination of a large feedgrain market in general, plus a (likely) good harvest, we’ll have a surplus of milling quality oats,” said Burnett.
“It’s just going to hurt the prices.”
That reality has already hit the markets, as oatinformation.com’s Daily Oat Report noted on July 28.
“Oat prices in Manitoba, the benchmark for Western Canada oat prices, tumbled last week,” said the report, estimating a one million tonne 2020-21 carryover if the crop turns out as current predictions forecast, boosting ending stocks by about 60 percent from the five-year average.
“A million metric end stock would clearly point to cash oat prices in Western Canada continuing to drop.”
It’s a happier situation for growers with durum and pulses. Those crops are not as dependent on one big market and face a world market with better supply-and-demand fundamentals.
“Even if we produce this six (million tonne) crop that everyone is expecting… I think it probably doesn’t lead to a huge build-out in stocks this year,” said Burnett.
Already ships are lining up at Thunder Bay to pick up the crop, which is a good sign.
That doesn’t mean prices can’t weaken, but good demand means their downside is limited.
“Prices will probably come off, but they won’t be coming off as much as if we were carrying large stocks going into this crop year,” said Burnett, noting last fall’s harvest troubles, which ravaged much of the 2019-20 crop.
Pulse crops too both look good and are facing healthy demand from offshore.
“Even through we’ve increased the area, it’s going to be really hard to out-produce what the demand is this year,” said Burnett.
Canola, with its multiple markets for seed, oil and even meal, is looking at decent demand and that appears likely to continue.
One unique factor this crop year is the easy ability of grain companies to get rail service, rather than having to scrap with other commodities to get their grain to port. The fall season is Canada’s best window to export crops, with southern hemisphere crops still months away from harvest and American crops often coming off weeks later than Canada’s.
This year, exports of many commodities that compete with grain for rail service have slumped, leaving railways to rely more on grain.
That could be particularly good for spring wheat sales, even though prices are unlikely to have much upside due to the glutted world market. Until the Australian harvest comes in at the end of the year, Canadian spring wheat will find good demand across Asia with little competition.
“We’re going to have a pretty big runway where we’re going to see some strong export movement,” said Burnett.
“We’ve been given a good six months (in which) we’ll see pretty good ability to export.”
All of these predictions, however, could be thrown out by bad weather.
“Weather can happen. We don’t need a late harvest,” said Burnett.