The prairie grain industry is getting ready to face something it hasn’t seen in years – a normal crop.
But caution is still the rule, even though many crops are past the danger point.
“It isn’t in the bin yet, and I know better than to assume it is,” said Agricore United chief executive officer Brian Hayward. “Farmers still have a lot of crop out there.”
But as every day passes, farmers have a better chance of bringing in the crop and giving the prairie grain handling industry its first real workout in five years.
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According to Statistics Canada, this year’s canola crop is likely to be the second largest in history, the flax harvest could be double last year’s, durum production will increase slightly and spring wheat, barley and field pea production will drop slightly.
Statistics Canada’s crop forecast masks some important regional differences. Saskatchewan, for example, is expecting record production in several crops, while Manitoba is expecting a disaster in some areas.
Field pea production in Saskatchewan is expected to hit a record 2.5 million tonnes, but Manitoba’s pea crop will collapse by 51 percent to 78,300 tonnes. Manitoba canola production is expected to drop by more than one third, but Saskatchewan is expected to harvest record tonnage.
With huge crops to be handled in Saskatchewan and good crops in Alberta, grain companies will be in a position to prove they can move a crop, make money and avoid controversy.
The often snarled and dispute-plagued grain handling system of Western Canada has undergone significant corporate and regulatory changes in the past few years. Whether those will result in better overall performance may now be seen.
“We don’t know how much the improvement has been because with the bigger crop comes additional expense and (that raises) some concerns about the wheat board and the system and whether all the benefits they should be able to get from these improvements should flow through to the bottom line,” said Ben Chim, an analyst with Dominion Bond Rating Service, which judges the performance of companies like Agricore United and Saskatchewan Wheat Pool.
“The improvements they’ve made haven’t shown up yet because of the poor crops (of recent years).”
This year’s crop is remarkable because of its good size and because it will likely contain a full spectrum of grades and qualities, which helps marketers find buyers.
Last year’s crop was a poor quality nightmare for thousands of producers as well as grain companies, processors and the Canadian Wheat Board. With much of the crop poor or feed quality, it moved slowly through the system into a world glutted with bountiful overseas crops.
Nolita Clyde of Ag Commodity Research said this year’s good-sized crop and low market prices mean canola might be able to find buyers in the world market, but farmers will have to decide whether to accept low prices soon after harvest, or hang on to their entire production and run the risk of pushing prices even lower later in the year.
“Producers may try to delay selling more than they need to,” she said in a research report.
“We will need to see enough sales to ensure that the operating loans get paid at the end of October, but we aren’t expecting producers to be overly
aggressive sellers.”
If they sell some canola soon after harvest, farmers will cause some price weakness as deliveries encourage buyers to increase basis levels and the market reacts to the reality of more grain in the system.
“If we see price pressure, we may see some non-traditional end user buying,” said Clyde.
“If so, canola prices will see support and we may delay our downward price trend that is expected this year. However if the sales do not transpire and Canada continues to carry huge excess supplies, prices have the potential to weaken further.
“History tells us that if we don’t find a way to make these sales, the latter half of the crop year could see a significant downward price trend. These sales will get filled by other exporters or other products and then when producers want to deliver later in the year, there is often very little demand.”
The price outlook isn’t very sunny for wheat either. The Canadian Wheat Board’s Pool Return Outlook is hovering in the trough it settled into this summer, with No. 1 Canada Western Red Spring wheat expected to fetch $5.33 per bushel before deductions.
With few signs of major problems in most world crops, the market has little reason to fear shortages, keeping prices wallowing in the bog.
