Wednesday's Statistics Canada July 31 stocks report, which marks the end of the 2015/16 crop year, shows overall tighter stocks of grain as expected but at the same time may have surprised market watchers with higher-than expected estimates for the largest crops, wheat and canola.
Canada's all-wheat stocks were reported at 5.167 million metric tons, down 26.8% from 2015 and 28% below the five-year average. This volume is higher than the average pre-report estimate of 4.29 mmt as seen in a Reuters poll reported by producer.com, while is close to the highest of 11 estimates in the poll with more than a 2 mmt spread seen between the lowest and highest estimates. Had stocks been reported at the estimated 4.29 mmt level, ending stocks of Canada's all-wheat would have been the lowest since 1950, instead, they have reached a three-year low.
The durum stocks estimate came close to expectations at 1.092 mmt, up 14.2% from 2015 although still 21% below the five-year average. The average of pre-report estimates was reported at 1.020 mmt. This could be viewed as slightly bearish for the durum market, although the overall quality of this year's Prairies crop remains undetermined. Latest AAFC supply and demand tables have boosted year-over-year demand while still pointing to a 70% increase in 2016/17 ending stocks which could push ending stocks to a seven-year high in 2016/17. Licensed exports as of week 4 are reported at 131,800 metric tons, 39.6% higher than the same period last crop year.
Wheat stocks, excluding durum, were reported at 4.075 mmt, down 33.2% from last year and 30% lower than the five-year average. This is the second consecutive decline in stocks with Canada diverging from the global trend of increasing and record-level wheat stocks. Today's report did surprise when compared with the average pre-report estimate reported of 3.270 mmt which is 800,000 metric tons below today's official estimate. Instead of making comparisons to the tight stocks held in the 1940s, today's reported stocks have reached a three-year low, but are still historically tight. Overall quality will play a major role over the upcoming crop year, while exports will need to keep close to the pace of 2015/16 in order to prevent a year-over-year build in stocks. While it's early in the crop year, licensed exports as of week 4 are 41% behind the volume shipped in the same period of 2015/16.
A further surprise was seen in the July 31 canola stocks reported today. The pre-report average estimate came in at 1.270 mmt, while Statistics Canada surprised with an estimate of 2.016 mmt, above the highest pre-report estimate seen in the Reuters poll which included feedback from 11 traders or analysts. This volume is 20.7% below July 2015 and 12% higher than the five-year average.
If we go back to last December to the release of Statistics Canada's 2015 production estimates, we see that canola production was reported at 17.2 mmt, well-above the average of pre-report estimates at 15.5 mmt. Today's report saw 2015 production hiked from 17.2 mmt to nearly 18.4 mmt, very close to the size of the record crop produced in 2013. The canola market is showing a negative reaction given a bearish commercial response given weakening spreads in today's trade, trading narrowly mixed in late-morning trade as compared to the double-digit gains seen in soybeans. Adjusting AAFC's supply and demand tables with today's higher ending stocks figure we realize approximately 19 mmt of supplies in the upcoming crop year, which compares to the roughly 18.5 mmt of demand faced in the previous crop year, which suggests that stocks could still be tight in the upcoming crop year. Demand will be key, although current prairie basis levels remain weak while both crush and exports are behind last year's pace.
Flaxseed stocks were reported at 274,000 mt, 182.5% higher than 2015 and 132% above the five-year average, while slightly lower than the average of pre-report estimates. Current AAFC estimates call for a sharp rebound in exports in the upcoming crop year, which could point to ending stocks close to unchanged by the end of the 2016/17 crop year.
Estimates for both oats and barley showed ending stocks for 2015/16 higher than both 2015 and their respective five-year average. At 1.443 mmt, the July 31 barley stocks estimate was slightly lower than the pre-report trade estimate. Current AAFC estimates point to barley stocks growing over the upcoming crop year. Oat stocks were estimated at 930,000 mt, higher than the average of pre-report estimates of 880,000 mt, while 28.2% higher than July 2015 and 25% higher than the five-year average. A reduction in acres seeded to oats in 2016 along with an expected bump in exports forecast by AAFC could lead to a year-over-year cut in ending stocks in 2016/17.
Both lentil and pea stocks were estimated lower than seen in pre-report estimates. Lentil stocks were estimated at 73,000 mt, down 80% from the previous year and 89% below the five-year estimate. Dry pea stocks were reported at 176,000 mt, below the average of pre-report estimates of 210,000 mt. This is 74.3% below 2015 and 56% below the five-year average. This too, would be favorable news given a large crop on the way, although ending stocks are expected to grow sharply over the upcoming crop year which is expected to weigh on prices over the crop year.
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