Farmers are cutting production costs rather than speculating on future prices this spring, analysts say about the results of the Statistics Canada spring seeding intentions survey.
Farmers plan to reduce canola acreage – one of the crops with a better price outlook – and boost acreage of two crops with poorer market outlooks: peas and barley.
Spring wheat acres will likely increase almost six percent to 17.3 million, while durum will fall by about five percent to 5.7 million acres, according to the StatsCan survey done in late March.
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The spring seeding intentions report’s conclusions, released April 24, were a surprise to many.
But they don’t defy logic.
“It does seem to make sense,” said Union Securities broker Ken Ball, speaking about the reduction of planned canola acreage to about 15 million acres from last year’s record 16.2 million. Agriculture Canada estimated in January that farmers would boost canola acres to 16.7 million.
Other analysts concurred with Ball that fewer canola acres made sense, but were divided about whether farmers truly will boost barley acres.
“I can’t believe there’s that much barley going in,” said John Duvenaud of the Wild Oats markets newsletter.
“At $2.50 (per bushel) it’s hard to believe that much barley is going to go in.”
But increased barley acres make sense to Darren Frank, a market analyst with FarmLink Marketing Solutions.
“We just saw that malt contracts were good . . . and barley’s a relatively cheap crop to grow,” said Frank.
“Input costs are outweighing potential returns right now.”
Farmers across the Prairies appear to be favouring crops that cost little to plant and grow, analysts said.
That explains why wheat, barley and peas are popular this spring, while canola appears to be less so.
The market outlook has shifted little during the winter, but anxiety over the world situation has registered.
Canola costs more to plant and manage, so farmers seem to be reducing their reliance on it, despite its recent price rally.
If canola seeding does drop this spring, the price outlook gets even better, Ball said.
“If that’s true, we won’t be facing the overwhelming supplies we might have done had we put in 16 million acres,” said Ball.
Recently, there has been skepticism about early projections of an almost 17 million acre canola crop. Farmers have been pushing rotations in some regions already and high input prices have been sticking in the craw of many.
However, Frank said farmers will likely wind up seeding more canola than what they told StatsCan.
“The history of the last two years is that we’ve found more acres as we move into the year, and we still expect that to happen,” said Frank.
Ball agreed canola area will likely increase as farmers react to the recent rally in canola prices and a recent change in sentiment toward wheat.
“The perception (in mid-March when the Stats Can survey was completed) was pretty bullish on wheat but worried about that big canola carryover,” said Ball.
“Now the whole oilseeds thing has shifted around and the perception of wheat has changed to be much less positive…. Six weeks ago we were hearing about ‘razor thin wheat stocks,’ and now the word ‘glut’ (keeps) appearing.”
The larger than expected pea area was a surprise to many, who assumed farmers would reduce their plans for the crop when faced with poor contract prices, but peas’ ability to make its own nitrogen seems to be winning farmers who might normally back away from a crop with a relatively poor price outlook.
