Canada Markets

Statistics Canada released its third and final production estimate for Canadian crop production this morning. Overall Canadian production for the 12 principal field crops saw an increase of 1.973 million metric tons over the previous September estimate. By far, the biggest changes took place in eastern production, with corn production increasing 15% from 2011 and soybeans increasing 14.7% from 2011. Production revisions were made to crops as far back as 2007, leaving total impacts to the balance sheet unclear.

The most anticipated number was the estimate for canola production. Trade estimates pegged the canola crop anywhere from 13 mmt to 14.4 mmt, as compared to the September estimate of 13.359 mmt and the 14.6 mmt produced in 2011. While any number announced in today's report would result in a bullish fundamental outlook given the current pace of use, any cut to production would certainly be unwelcome. Today's report cut overall production for 2012 by 49,500 mt. At the same time, a second upward revision was made to the 2011 production, with an increase of 115,100 mt, taking total production to a record 14.6081 mmt.

Taking past revisions into account, canola stocks ended slightly larger as a result of this report. Looking at this from another perspective, total supplies in 2011 were 16.8 mmt, with total disappearance of 16 mmt. Domestic crush has since expanded and oilseeds are in demand due to the short crop in the American Midwest. This crop needs to be rationed, while current data suggests exports are running just 2% behind last year, while domestic use is 21.9% ahead of last year. Canola will continue to be well supported, while the last few months of the crop year should see supplies next to impossible to source.

The canola market has reacted to the upside today, with news of a production cut added to a bullish day in the global oilseed markets. Canola closed up $12.40/mt on the nearby January future.

The estimate of Canada's all-wheat production from the trade saw a range of 26.5 mmt to 27.4 mmt as compared to the September estimate of 26.733 mmt. The December estimate was released at 27.205 mmt, an increase of 472,000 mt. Spring wheat saw an increase of 243,000 mt, while durum increased 228,000 mt. This news will have little impact on the global market, with current focus on the significant supply shocks as seen in Australia and the Black Sea regions, as well as the drought conditions in the Southern Plains of the United States, which have led to the poorest ratings for the hard red winter crop since the ratings began in the 1980s.

The barley estimate for Canada was a bullish feature in this report. Trade estimates called for an 8.5 to 8.9 mmt crop size in today's report, as compared to the 8.59 mmt crop estimate released earlier. The trade was surprised with a 579,000 mt cut to production, a move that the marketplace can ill-afford due to already tight stocks of feed. Carryout for this year should fall back below the 1 mmt mark, an extremely tight number. At the same time, feed demand has been rationed, with more lighter cattle being backgrounded, utilizing less grain in the ration, while overall numbers on feed are suggested to be some 300,000 head lower than this time two years ago. The feed barley market should be well supported moving forward on continued concern over supplies along with the lingering U.S. drought which will support markets.

Another surprise was seen in the oat estimate. The trade estimated 2012 oat production between 2.875 and 3.12 mmt, as compared to the last Stats Canada forecast at 2.939 mmt. The actual forecast released today indicated a crop size of 2.684 mmt, well below the lowest trade estimate. This should be most positive for oat prices. Despite U.S. oat futures that have traded relatively flat, cash oat prices have rallied on the Canadian prairies, with 3 CW feed oats delivered to Saskatoon, a central prairie location, up $55.79 or 86 cents/bu since June 1, prior to the U.S. Midwest drought and the run-up in corn futures.

Pea production was estimated by the trade to be in a range from 2.67 mmt and 2.85 mmt. This compares to the September estimate of 2.743 mmt. The production figure released today pegged production at 2.830, within trade expectations. I believe there are no concerns finding homes for Canadian pea production in export markets. Recent losses in Argentina have created additional concerns in the marketplace. Green pea prices are especially hot, with the most recent Saskatchewan plant price at $12.97/bu, a $4.49/bu premium to yellow pea prices. This price is up $2.87/bu since the start of the crop year, while the premium paid over the yellow price has moved from a more traditional $1.98 on August 1st to $4.49/bu today.

Yellow peas are also suggested to be the cheapest available pulse available in the Indian market, while also the largest imported pulse in India. This alone should support prices, while late seeding of the Indian winter or Rabi crop may impact pulse production moving forward which may also provide support to the pea market.

The size of the 2012 lentil crop got bigger, with the September estimate of 1.386 mmt production increased to 1.473 mmt, an increase of 87,000 mt. This will not help the lentil market, which is already forecasting a 650,000 mt carryout of product this year which represents a 42% stocks/use ratio.

By far the largest adjustment made in today's report was made to the corn and soybean crops, grown almost entirely in Manitoba and provinces to the east of Manitoba. Corn production was raised by 1.484 mmt from the September forecast to a record production level of 13.060 mmt. This represents a 15% jump from 2011. Soybean production was raised by 650,000 mt from the September forecast to a record production level of 4.930 mmt. This represents an overall 14.7% increase from 2011. There should be ample opportunity to increase exports to meet this extra production. As well, the size of the soybean crop will be welcomed by the domestic crushing industry which will face ever-tightening canola supplies over the balance of the year.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

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