You’d think a Statistics Canada report that slashed the Canadian canola production estimate to 12.8 million tonnes, down almost two million from the previous month’s report and down 6.7 million tonnes or 34.4 percent from last year’s crop, would give canola futures a sustained boost.
The report issued Sept. 14, which pegged the canola crop as the smallest since 2010, initially sparked a spike up to $900 a tonne in the November contract but then it gave most of the gains back, closing the week at $876.30.
Canola prices of $850-$900 per tonne remain remarkably strong in the historical context but are off a little from the all-time highs set in the spring contracts.
They deserve to remain strong. Indeed for all the crops that Canada is a major world supplier, prices will have to be high enough to ration demand for the drought-reduced supplies.
But that does not mean they will be cut free entirely to soar higher than the global grain and oilseed market, dominated by corn, soybeans and wheat.
While supply of the major crops are tighter than recent experience, they are not scraping the bottom of the bin like they were in the extended market boom of 2008-13.
Indeed the canola market’s modest reaction to Statistics Canada cutting its production estimate could be linked to uncertainty in the soybean and soy oil markets. Like canola, soybeans and soy oil prices are historically strong, but further rallies seem unlikely in the near future.
While StatCan cut its canola production estimate from the previous month, the United States Department of Agriculture raised its soybean yield estimate to 50.6 bushel per acre from 50 and lifted the production estimate to 4.37 billion bu. from 4.34 billion the previous month. A trimmed harvested area estimate partly offset the positive impact of the yield increase.
U.S. traders are concerned about the impact of Hurricane Ida damage to grain export infrastructure at Gulf of Mexico ports.
Also soybeans and corn futures are feeling pressure from the ramp up of the U.S. harvest.
The USDA forecasts that 2021-22 domestic year end soybean stocks will increase slightly to 185 million bu. from 175 million at the end of 2020-21. That means a still tight stocks-to-use ratio of 4.2 percent compared to 3.9 percent last year.
The U.S. domestic soybean stocks-to-use ratio was generally less than five percent in the high price years of 2008-13.
However, the global soy supply outlook is less tight at 26.1 percent. That is not comfortable, but it is not as tight as the 2008-13 period when it was often around 22 percent.
The corn market also sees little news to drive it higher in the near term.
The USDA this month raised its domestic production forecast to 14.99 billion bu., up from last year’s 14.18.
It sees year end stocks at 1.41 billion bu. for a stocks-to-use ratio of 9.5 percent, up from last year’s 1.19 billion bu. and 7.9 percent.
USDA’s forecast for global year end stocks is 297.6 million tonnes for a stocks-to-use ratio of 25.1 percent, similar to last year’s 286.5 million tonnes and 25.2 percent.
Corn and soybean traders also wonder about Chinese demand for imported feed.
African swine fever surged in China recently leading to herd culls. Also low hog prices generated losses for producers.
The USDA forecasts China’s hog production will fall by 14 percent in 2022, meaning less demand for imported corn and soybeans.
Turning to wheat, the disastrous hard red spring wheat and durum crops in Canada and the U.S. supported the market as did the decline in Russia’s crop.
But the support manifested mostly in the Minneapolis spring wheat contract where December now has about a US$1.80 per bu. premium over the Chicago wheat contract. In May the premium was only 10 cents.
While U.S. hard red spring and durum supply is very tight, its supplies of hard and soft red winter wheats are larger than last year.
The USDA forecasts year end domestic supply of all wheat will be 615 million bu. for a stocks-to-use ratio of 29.8 percent, down from 844 million and 40 percent last year.
Globally, the reduced production in Canada, Russia, the U.S. and Kazakhstan is offset by big increases in the crops in the European Union, Ukraine, Argentina and North Africa. Australia is also expected to have a good crop.
Total global wheat production is pegged at 780.3 million tonnes, up from 775.8 million last year and year end stocks are seen at 283.2 million tonnes for a stocks-to-use ratio of 35.9, down from 37.5 percent last year.
Stocks were often below 30 percent in the 2008-13 period.