Canada Markets

It was no surprise that Canada's July 31 grain stocks have grown substantially from the previous year, given Canada's record-sized crop in 2013 and the transportation issues faced over the winter. Of the principal field crops listed, only stocks of lentils shrunk from the prior year, while the stocks of other grains swelled from the previous year with canola stocks increasing by 301.8% from the 2013 level.

Canada's all-wheat stocks were reported at 9.795 million metric tonnes, below the range of pre-report trade estimates but still 93.9% higher than the 5.052 mmt reported for July 2013. The five-year average is 6.5 mmt.

Durum stocks were reported at 1.813 mmt, within pre-report estimates and 57.4% above the 1.152 mmt seen in July 2013. The five-year average is 1.78 mmt.

Canola stocks were reported at 2.363 mmt, a whopping 302% above the 588,000 mt carryout in 2013 but near the lower end of the pre-report trade estimates as determined by a Commodity News Service poll. Trade analysts were looking for stocks to be in the 2.3 mmt to 3.85 mmt range. This level is also above the five-year average of 1.635 mmt. While it may be a stretch to call this a bullish report, when combined with the prospects of a much smaller harvest this fall canola supplies will ultimately be tight.

In a recent DTN 360 Poll, the question was asked how large the carryout of canola would be as of July 31. Only 16% of respondents felt the carryout would be above 2 mmt, while 53% of respondents felt the carryout would be between 1 mmt and 1.9 mmt.

Given Statistics Canada's July production estimates, which suggested canola production to fall to 13.9 mmt, total supplies this fall will be more than 2 mmt below year ago levels. The 13.9 mmt production, most likely overstated due to the challenging season experienced since this report, added to the 2.4 mmt carryout would suggest supplies of 16.3 mmt (ignoring the impact of imports) which compares to AAFC's July demand estimate suggesting 8.8 mmt of exports and 7.5 mmt of crush, which also totals 16.3 mmt. Supplies will be rationed, and a narrowing of the Nov/Jan spread from minus $6.20/mt (Jan over the Nov) to minus $5.20/mt in the past three days may be an early sign of concern.

Barley stocks were reported at 1.924 mmt, up 96% from year-ago inventories and above the five-year average of 1.83 mmt. Given the July production estimate of barley production of 7.2 mmt, supplies are likely to be below 9 mmt this season which would be a record low. The estimate was also within trade expectations. Feed users may find comfort with the possibility of increased feed wheat supplies on the prairies given the weather and disease issues faced on the prairies.

Oat stocks were reported at 1.31 mmt, up 104% from the 505,800 mt carryout seen in 2013/14. The five-year average carryout is 946,600 mt, so stocks are just slightly higher than average. This estimate places the oat carryout at the lower end of trade expectations, which ranged from 1 to 1.4 mmt. Total supplies will be roughly 800,000 mt lower than 2013/14 based on the July production estimates.

One crop which faced a drop in year-end supplies is lentils. At 169,000 mt, lentil stocks are 45% below the 307,000 mt carryout seen at July 31 2013. This remains well behind Stats Can's five-year average of 411,800 mt. Given the July production forecast and the challenges faced since, lentil supplies will likely fall to a five-year low this upcoming year and should be positive for prices.

Producers are carrying almost all of the increase in stocks on farm, while the Province of Saskatchewan, the furthest from port, is carrying the largest share of the farm stocks. The year-over-year increase in stocks of the major grains reported by Stats Can increased by 216% in western Canada to 10.154 mmt, as seen on the attached chart. Manitoba's on-farm stocks of all grains increased 157% to 703,000 mt, Alberta's on-farm stocks increased 187% to 3.378 mmt and Saskatchewan's on-farm stocks increased 240% to 6.040 mmt.

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

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