Agriculture and Agri-Food Canada released their July supply and demand estimates on Thursday, a difficult time with both global supply and demand in a state of flux. This week's DTN weather forecasts have switched from a forecast that points to the potential of rain in southern Russia over the next 10 days, possibly weighing on quality, while Friday the focus was on ongoing drought in eastern Australia. The continuous active Paris milling wheat contract reached its highest level in three years this week. On the demand side, the U.S. is threatening to up the ante on tariffs on Chinese imports, which can only may have significant consequences for global trade flows.
Current estimates suggest a year-over-year decline of 1.44 million metric tons of Grains and Oilseeds (G&O) as well as a 90,000 metric ton decline in Pulses and Special Crops (P&SC), for an overall year over year decline of 1.53 mmt. Of the major crops selected, as seen on the attached chart, only two, durum and lentils, are expected to end 2018/19 with an increase in ending stocks. In the case of durum, a year-over-year increase of 400,000 mt or 28.6% is expected, while lentil stocks are expected to grow by just 25,000 mt or 3.1%.
Smaller crops where a year-over-year build in stocks is expected, while not shown on this chart, include chickpeas, where stocks are expected to grow from 5,000 mt to 150,000 mt over the next year, while more modest increases are expected for mustard and sunflower seed crops.
The largest year-over-year declines is forecast for wheat, with stocks forecast to fall by 700,000 mt to 4 mmt by July 31 2019, which could be the lowest stocks realized in six years. That forecast suggests exports will remain almost equal to 2017/18 levels, while USDA's latest WASDE report forecast Canada's all-wheat exports to rise by 7.5% (wheat and durum) in 2018/19. Canada's canola stocks are expected to fall by 16.7% or 450,000 mt to 2.250 mmt, which is 550,000 mt higher than last month given an upward revision in Statistics Canada's seeded acre estimate. This would be only slightly lower than the five-year average (2013-2018) if one accepts the current 2.7 mmt estimate carryout for the current crop year.
One problem with this month's analysis is that the crop deterioration in Western Canada has not been taken into account by AAFC. Estimated yields are fairly consistent, sometimes even higher than those estimated in the June report. Canola commentary refers to condition ratings reported at the end of June for Saskatchewan and Alberta, while hot and dry weather since has taken a toll on the crop in many areas. For example, the 76% good-to-excellent rating quoted for Alberta in late June has turned into 72% as of July 17.
One area that could also surprise in the year ahead is the demand side of the equation. As mentioned, USDA already has taken a more aggressive approach to Canada's all-wheat export potential, after the July WASDE report made cuts to the production potential in the European Union, Russia, Australia and Ukraine. As well, AAFC has boosted Canada's export potential for both canola and soybeans in the upcoming crop year, although the current export forecasts are equal to or even higher than the volumes forecast over the past year for the 2017/18 crop year, long before the China-U.S. trade war began, which could lead to further opportunity.
Cliff Jamieson can be reached at firstname.lastname@example.org
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