Canada Markets

On Feb. 5, Statistics Canada will release their Stocks of Principal Field Crops as of Dec. 31, 2012. This will be a key report for canola and will shed light on just how tight stocks actually are and set the tone for the market for the balance of the crop year.

There are those in the trade who could suggest that stocks are much greater than anticipated. One such example is a Western Producer report from the Crop Production Week in Saskatoon suggesting that Marlene Boersch of Mercantile Consulting Venture Inc, sees as much as 1 million metric tonnes of production in excess of current Statistics Canada data. This would reflect an average 31 bushels per acre yield across the prairies, as compared to the 27 bu/ac yield forecast by Stats Canada.

Current supply and demand tables highlight just how tight canola stocks may be. Total 2012/13 supplies are estimated at 14.162 million metric tonnes, ignoring the timing of the 125,000 metric tonnes in forecast imports. The total year-to-date disappearance reported by the Canadian Grain Commission, as of Dec. 31, was reported at 6.531 mmt in the combined week 21/22 data. This data would lead to a Dec. 31 stocks level at 7.631 mmt, the lowest Dec. 31 stocks since 2007 when stocks were 7.427 mmt.

Based on this data, the draw-down in stocks from January through July would be 7.281 mmt in order to achieve the 350,000 mt carryout for 2012/13. This compares to the average usage or drawdown of stocks for the same seven-month period over the past three years of 8.335 mmt and 7.717 mmt over the past five years. January through July usage in 2012 was 8.958 mt in order to compare to last year. Should Dec. 31 stocks be reported as such, or perhaps tighten, the canola industry will face challenging times through the balance of the crop year.

Here are potential indications of why Dec. 31 canola stocks may be higher than anticipated:

-- Total disappearance of seed (export and domestic crush) has remained on a rapid pace. The Grain Commission's week 24 Grain Statistics Weekly indicate overall disappearance as slipping below the 2011/12 pace for the first time since early this fall. While export sales have lagged, the domestic crush is much higher due to expanded capacity on the prairies. As of week 24, domestic crush was 14.1% ahead of last year while 34.2% ahead of the three-year average. Total disappearance as of week 24 was just 2.3% behind that of last year.

-- As stocks tighten later in the crop year, exporters tend to back away from chasing canola given the difficulties in putting together large enough volumes to facilitate unit trains. Focus often shifts to grains that are more readily available in volume. So far this is not the case. Country basis levels continue to narrow, reports are indicating producers welcoming the $14/bu level once again, markets are feeling the pressure of elevator hedge activity while there are rumors of additional export business being done. The exporters remain engaged in the pursuit of seed which may indicate there's more available than expected.

-- Old-crop futures spreads continue to strengthen, although in the case of the nearby Mar/May, at a slowing pace. The Mar/May strengthened $2.40/mt the first week of January, $1.10/mt the second week, $.90/mt the third week and $.50/mt so far this week. While this spread paints a picture of a bullish fundamental outlook, it does show signs of easing.

-- The July/November spread is gradually collapsing. While this spread reached a high of $65/mt last September, it has fallen to $34.30/mt as of today, falling $3.60/mt so far this week. While still an exceptionally bullish situation, it is becoming clearly less so, yet another indication that old-crop supplies may not be as tight as once expected.

We'll add today's work to the food for thought category and continue to watch the market for additional clues.

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

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