Canadian crops are bigger than originally thought
This week's report from Statistics Canada held the first, post-harvest estimates about the crops produced in 2017. All previous were based on expectations and took weather into account, but final output is not known until the crops are actually harvested.
The report released on Dec. 6 showed much larger output than expected for many crops (more specifics following) allowing for market pressure. With stocks of most crops already at large levels, farmers are not pleased with the increases in production estimates as a continuation of expanding stocks makes it more difficult for markets to find traction in the future.
Wheat markets were pressured with the news of higher Canadian output. Minneapolis futures pushed downward to its lowest level since the market was rallying in June. Spillover pressure took Kansas City and Chicago markets to new lows as well.
The Statistics Canada report showed all-wheat production at 29.984 million metric tons. This is a 5.5 percent reduction from 2016, but was up 2.8 million metric tons from Statistics Canada's previous estimate in September. The average trade estimate ahead of the report was 28 million metric tons, with the biggest at 29.5 million metric tons. Spring wheat output surged 8.4 percent above the 2016 output to reach 22.167 million metric tons. Yields hit 52 bushels per acre (compared to 47.3 bushels per acre for the five-year average).
Note that Canada is the fifth largest exporter of wheat in the world behind the U.S., European Union, Russia and Australia. Canada supplies about 12 percent of the world trade of wheat and ships out roughly 70 percent of its total production. This added output points to more supply in an already bearish wheat year across the globe.
Durum prices ticked lower after several weeks of sideways trade. Pressure came from lower spring wheat markets and (again) larger than expected production reported by Statistics Canada. Total output is expected to be 4.962 million metric tons. This is a 36 percent drop from 2016, but on the higher end of expectations ahead of Wednesday's report. Seeded area was down 16 percent from a year ago and yields fell to 35.3 bushels per acre versus 41.8 for the five-year average.
Durum stocks are still expected to drop compared to a year ago, but not by as much as previously anticipated. All of this allowed durum markets to fall despite generally tighter fundamentals compared to a year ago.
Canola production hit a record 21.3 million metric tons, according to the Statistics Canada report. This is an 8.7 percent increase from a year ago and higher than any of the pre-report estimates. Planted area was up 13 percent from a year ago and yield bumped to 41 bushels per acre versus 37.3 bushels per acre for the five-year average. Ending stocks are expected to increase for the first time in four years as a result of this bump in output. And the market took note: prices are pressing lower and testing support. Yes, demand remains good and export business is booming. There is hope for some support if Argentina continues to struggle with its soybean crop. However, the near-term outlook is more bearish given the unexpected supply cushion that Statistics Canada's report brought.
Peas & Lentils
Lentil output was pegged at 2.558 million metric tons (in line with pre-report trade estimates). Total output is down 21.2 percent from a year ago which is not shocking given the huge drop in area from a booming 2016.
For peas, 4.112 million metric tons were produced (which is a 15 percent decline from last year). Both yield and planted area were lower for peas, but production exceeded the market's pre-report ideas. For both of these markets, India's output and trade policy will be the major drivers into 2018.
Canadian barley production was pegged at 7.891 million metric tons. This is over 500,000 metric tons above the September Statistics Canada estimate and above the highest pre-report trade estimate for the report. Still, production is 10.2 percent below 2016 which points to tighter stocks in the 2017-18 crop year. However, the supply situation may not be as tight as initially thought.