Canada Markets

Canada and U.S. Contribution to Global Wheat Glut

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The blue bars and gold bars indicate the contribution of both United States and Canada all-wheat production to the total combined production over time, as measured against the primary vertical axis. The black line with markers shows the trend in combined all-wheat ending stocks, as measured against the secondary vertical axis on the right. (DTN graphic by Nick Scalise)

Tuesday's Statistics Canada Production of principal field crops July 2016 report shows the potential for a large Canadian wheat crop on the way, with the country's all-wheat production pegged at 30.487 million metric tons, a 10.5% increase over the production achieved in 2015 and 12.4% above the 10-year average. To understand the magnitude of this volume, the country's all-wheat production was estimated at a record 37.526 mmt in 2013, while is estimated at 32.098 mmt in 1991, 32.098 mmt in 1990 and 31.359 mmt in 1986, according to Statistics Canada estimates. This places this year's crop potentially among the largest ever produced in the country.

The USDA's recent August estimates show an estimated 2.321 billion bushels (63.2 mmt) of all-wheat expected to be produced in 2016, the largest seen since 2008/09 and an expected 9.5% higher than the 10-year average. The combined estimated production for these two countries is 93.6 mmt, a volume which has only been exceeded six times since the 1980/81 crop year. The highest combined production in this period is shown at 106.39 mmt in 1990/91.

Problematic for the market is the high level of ending stocks forecast both globally and domestically, as shown by the black line with markers. Combined ending stocks are estimated to grow for the fourth consecutive year in 2016/17 to 34.7 mmt, the largest combined carryout seen in available data going back to 1996/97.

As a percentage of estimated use, this combined data points to a ratio of 34.7%, troubling for the North American market and consistent with the USDA's global estimates which suggest a 34.5% stocks to use ratio.

Canada's situation remains favorable relative to that of the U.S., given the tight 2015/16 carryout which becomes beginning stocks for 2016/17 along with Canadian dollar weakness in relation to its U.S. counterpart. Tuesday's 30.5 mmt all wheat production estimate is exactly 2 mmt higher than AAFC's July estimate. If one adjusts AAFC tables by conservatively adding one million metric tons to exports while increasing ending stocks by one million tons while leaving domestic use unchanged, ending stocks of 4.8 mmt would represent just 16% of estimated 2016/17 use, which compares to the 47.4% indicated for the U.S. in the latest supply and demand tables.

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