Drought may change canola forecast

Despite the loss of its biggest export market, Canadian canola continues to move through the handling system at a reasonably good pace, according to figures from the Canadian Grain Commission.

According to the CGC’s Grain Statistics Weekly report, producer canola deliveries to primary elevators and processors were slightly less than 15 million tonnes through the first 43 weeks of the 2018-19 crop year.

That’s about 920,000 tonnes or six percent less than the same time a year ago, and almost on par with Week 43 of the 2016-17 crop year.

Of the 14.9 million tonnes of canola delivered by prairie producers so far this crop year, about 7.75 million tonnes have been exported and more than 5.7 million tonnes were delivered to domestic crushers.

Commercial stocks — canola supplies currently in storage at primary elevators, processing facilities and export terminals — were listed at nearly 800,000 tonnes as of May 26.

“It’s no surprise that (commercial handlings) are lower. That’s completely expected and predictable in light of what’s going on,” said Jonathan Driedger, senior market analyst with FarmLink Marketing Solutions in Winnipeg.

“We’ve always felt that the issues with China were undoubtedly going to hurt us … but I think there were also some shrill voices that added an almost apocalyptic view of demand,” he added.

“I wouldn’t say CGC’s numbers are encouraging, maybe that puts a more positive spin on the situation than is warranted, but then again, maybe some of the most apocalyptic and dire opinions that were being thrown around (earlier in the year) … were probably a bit too severe.”

Earlier this year, China announced that it had suspended canola export privileges for two of Canada’s largest grain handlers, Viterra and Richardson International.

Nonetheless, more than 630,000 tonnes of Canadian canola were shipped to China during the first three months of 2019, according to Canola Council of Canada statistics.

Updated export numbers can be viewed in D’Arce MacMillan’s Market Watch column on Page 8 of this week’s Western Producer.

As the impact of Chinese trade actions comes into greater focus and the effects of a prairie-wide drought begin to sink in, grain industry analysts are taking a closer look at supply and demand figures.

In its most recent production estimates released May 17, Agriculture Canada projected seeded area of 21.3 million acres, average yields of .89 tonnes per acre and total production of 18.9 million tonnes in the current production year.

Carry-out stocks — farm stocks on hand at the end of the crop year — were projected at 3.9 million tonnes for the crop year ending this coming July 31 and 5.3 million tonnes for July 31, 2020.

In a recent interview, Driedger said FarmLink’s production number for the 2019 growing season is not that far off Agriculture Canada’s May 17 estimate of 18.9 million tonnes.

But he conceded that FarmLink’s base production number could be ratcheted down, depending on the weather.

Severe drought conditions are affecting farms across much of Western Canada and there is a growing likelihood that average yields could fall well short of expectations.

“We have a number plugged in … but certainly that’s going to be subject to change as we go forward,” Driedger said.

“We’re getting closer to a bit of an inflection point here, where we start to say — ‘OK, there’s some real damage here and it’s potentially irreversible’, ” he added.

“If we don’t start to see some rain … (by June 20 or so) I think the level of concern is going to start to go up, and maybe it’s even sooner than that.”

Last month, Agriculture Canada lowered its production estimate for the 2019 canola crop to 18.9 million tonnes. Its previous estimate had been 19.75 million tonnes.

But even with the reduced production figure, Driedger said Agriculture Canada’s projected carry-out figure of 5.3 million tonnes for the 2019-20 crop year is higher than FarmLink’s.

“I’m going to be honest, we do have a lower number for our carry-out for 2019-20,” Driedger said.

“It (5.3 million) seems a little bit heavy to me. That kind of carry-out is enormous if they’re talking north of five million tonnes.”

Driedger said market forces — namely lower prices stimulating additional demand — would almost certainly come into play before ending stocks eclipse five million tonnes.

Brennan Turner, a Foam Lake, Sask., farmer and chief executive officer of online grain marketing platform FarmLead.com, also questioned Agriculture Canada’s ending stocks number for 2019-20.

Turner’s estimate is 400,000 to 500,000 tonnes lower than Ag Canada’s 5.3 million tonne projection, even before accounting for the potential of drought-related production shortfalls this year.

In mid-April, Agriculture Canada’s ending stocks estimate for the 2019-20 crop year (July 31, 2020) was 3.3 million tonnes.

A month later, the number had been raised by two million tonnes to 5.3 million.

“For the new-crop ending stocks to jump two million tonnes from their April estimate to their May estimate is just ridiculous,” Turner said.

“To go from 3.3 million to 5.3 million … that’s huge.”

Turner said the industry will be watching closely over the next week to two weeks to see what impact drought will have on 2019 production numbers.

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