Statistics Canada’s seeding intentions report shocked traders and analysts at the Winnipeg Commodity Exchange.
But most of them quickly reined in their excitement, deciding to hold off for a few weeks before accepting that farmers are drastically cutting canola production.
“A lot of the trade has kind of discounted the numbers and taken a wait-and-see approach,” said Wayne Fjeld, an Agricore trader and market analyst.
“They don’t really believe them.”
The report, issued April 24 and based on a survey of about 12,000 farmers, said prairie farmers plan to seed 23 percent fewer canola acres. Farmers said they expect to plant 9.3 million acres, far less than traders’ estimates of a crop of more than 10 million acres, which would have been a 10 to 14 percent reduction.
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Flax acres are also predicted to be down.
Farmers told the government agency they intend to plant 15 percent more dry peas.
Summerfallow acres are also expected to jump by about 15 percent.
If these numbers accurately reflect what farmers do this spring, it should mean better prices for new-crop canola, traders said.
But the survey was conducted in late March, when large areas of the dry western Prairies were still waiting for moisture, so there is still time for a good, general rain to radically change the situation. That’s why futures prices haven’t jumped yet.
“Things could really swing either way,” said David Reimann, analyst with Benson Quinn-GMS.
Seeding intentions reports often back up what traders have already figured out through their own research, so they aren’t usually a cause for excitement.
But when the April 24 report came out, a couple of hours before the exchange opened, the surprising results sent traders scurrying for the phones to talk to clients.
“When the opening bell went, there was a lot of action,” said Reimann.
Statscan’s report should not change expectations for good canola demand over the summer, he said. That will allow farmers to move old-crop canola.
But he said farmers shouldn’t expect a rally for old-crop canola.
“I don’t think anybody here will just step in and buy it hand over fist,” said Reimann.
Any rally will happen later, raising prices for new-crop canola.
If canola acreage plunges 23 percent, crushers and other canola users will have to compete for supply.
“It means a fairly tight supply situation in the next 12 months,” said Reimann.
Statcom canola analyst Nolita Clyde said a 9.3 million acre canola crop would be the smallest since 1996-97.
“That’s not a lot of canola to go around the world,” she said.
Canola prices would probably have jumped on the government report, she thinks, except for the fact that high soybean stocks around the globe are keeping a lid on oilseed prices generally.
She thinks dry conditions in parts of Alberta and Saskatchewan are the main reason farmers have said they are backing away from growing canola this summer. Farmers may also be reluctant because because canola is expensive to produce.
But weather can still change before seeding is finished, so the numbers in Statscan’s report could also change.
“There is still time for them to change their mind,” said Clyde.
But because there is a chance of a rally if Statscan’s numbers do turn out to be correct, Fjeld said producers may want to wait before selling their new crop.
“I would say with a 20 percent drop (in production) producers wouldn’t want to sell anything too far ahead.”
