Media reports are pointing to growing frustration over the Statistics Canada estimates for Canada's canola crop. There is no question that 2016 posed a challenge for Canada's statistics branch when it comes to estimating Prairie production, given that a significant acreage was left in the field over winter. While this production was included in the final estimates released in December, it may fail to address if harvesting was possible in the end, the quality of the spring-threshed crop and the potential yield losses linked to taking this grain off in the spring.
Anyone following reports from DTN analysts will at some time be exposed to the notion that all estimates such as described above are taken with a grain of salt, while focusing more on "listening" to the market and following the cues given is viewed as being far more valuable.
One cue was released on the May 5 Statscan March 31 stocks report, which indicated stocks at 6.6 mmt, down 2 million metric tons from the previous crop year. In 2015/16, the April through July disappearance totaled 6.5 mmt, while current exports and crush are ahead of last year's pace, suggesting stocks could be heading to zero by the end of July 31. Yet the market closed only $3/mt higher that day, closing in the middle of that session's trading range after reaching the May high of $530/mt high that has yet to be tested this month.
The July/Nov spread has strengthened to a $24.60/mt inverse, well above the recent March 20 low of $6.70/mt but far from testing the $27.90/mt high reached in April and the February high of $31.60/mt (July trading over the November). The average Prairie basis was calculated at $11.17/mt under the July on May 2, while has strengthened only slightly to $10.04/mt under today.
It appears that the situation is not as critical as government estimates would suggest, given market signals. The attached graphic shows that over the past 10 years (2006 -2015), the final November crop production estimates were revised higher in eight of the 10 years. The higher revisions ranged from 443,600 metric tons in 2006 to 1.1765 mmt in 2015. Over the 10-year period, the average revision was 630,240 mt, while in the eight years where production was revised higher, the average revision was 800,650 mt.
The green bar for 2016 indicates the ten-year average revision added to the 18.4 mmt estimate released in December, which could indicate some 19 mmt of 2016 production and help support the current pace of disappearance.
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Cliff Jamieson can be reached at email@example.com
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