Canada Markets

Statistics Canada released its latest report on Wednesday, which focuses on estimates for Canadian grain stocks of principal field crops (excluding corn and soybeans) as of July 31. In a nutshell, stocks increased year-over-year for all grains except for canola, flax and oats.

Canada's all-wheat stocks as of July 31 were reported at 6.885 million metric tons, up 32.6% from July 2016 and the highest level reported since July 2015. This volume is higher than the average of pre-report estimates reported by media and closer to the higher end of the range of pre-report estimates. Statistics Canada noted an overall increase in both commercial stocks and estimated farm stocks.

Breaking this down to look at numbers reported for wheat and durum, stocks of wheat (excluding durum) were reported at 5.003 mmt, up 22.7% from July 2016 and the highest July 31 stocks reported since 2015. This is slightly higher than range of pre-report estimates. Despite the hike, this volume remains below both the five and 10-year average stocks as of July 31. It is interesting to note that while commercial stocks of wheat (excluding durum) increased by 925,000 metric tons in the past year, estimated stocks situated on the farm fell by 313,000 mt, to 1.412 mmt, which is the smallest estimated farm stocks since July 2010. Estimated farm stocks are slightly lower in Manitoba from July 2016, and 85,000 mt higher in Alberta, while 550,000 mt lower in Saskatchewan. Wheat stocks as a percent of use or disappearance is calculated at 22.8%, up from 17.5% in 2015/16 and is the highest level reported in three years.

Durum stocks as of July 31 were estimated at 1.863 mmt, equal to the average of pre-report estimates. This number is 69.4% higher than the July 31 2016 stocks and above both the five-year and 10-year averages for the same date. Growing stocks were noted despite soaring domestic feed demand, with domestic use calculated at 2.28 mmt, which is roughly three times the five-year average. While commercial stocks were estimated to grow a modest 263,000 mt year-over-year, farm stocks in Saskatchewan are estimated 350,000 mt, or 77.8% higher, at 800,000 mt while farm stocks in Alberta are estimated to have grown by 150,000 mt, or 500%, to 180,000 mt. 2016/17 stocks as a percentage of use are estimated at 26.6%, up from 20.9% the previous year and the highest in three years.

Following last week's 1.4 mmt hike in 2016 production, canola stocks were estimated at 1.348 mmt, down 35.5% from the previous year, the lowest stocks in four years and below the 1.5-mmt average of pre-report estimates. It is interesting to note that the highest estimate in the range of pre-report estimates was 2 mmt, which points to the potential that stocks are even higher than reported. This volume is below both the five- and 10-year averages as of July 31. While the farm stocks are reported to have fallen 56%, to 430,000 mt, this estimate may be questioned given that the Canadian Grain Commission reported a substantial sum of nearly 360,000 mt delivered as of week 3, or August 20, although this does include some amount of new-crop deliveries. Canola stocks as a percentage of 2016/17 demand has fallen to an extremely bullish 6.6% from 11% the year prior, while the lowest calculated in four years.

Barley stocks were estimated at 2.122 mmt as of July 31, up 47.1% from 2016 and the highest volume reported in seven years. This volume is well above both the five- and 10-year average stocks as estimated by Statistics Canada, while is closer to the upper-end of the range of pre-report estimates. This estimate is despite the most recent April-through-July inferred disappearance of 2.456 mmt that is slightly higher than the five-year average for this period, even as barley faced competition from both wheat and durum in feed rations. Barley stocks as a percentage of disappearance is calculated at 26%, up from 17.7% last year and the highest level seen since 2008/09.

While farm stocks represent 84% of the total at 1.789 mmt, one-third of this volume is estimated to be situated on Saskatchewan farms and a further 50% is expected to be situated on Alberta farms, the highest volume also seen since 2009. One reason to question this is the run-up in Lethbridge cash prices. The delivered Lethbridge cash bid rallied from the mid-150s/mt in mid-February to a reported high of $210/mt in mid-July, while is most recently reported below $200/mt. One could question why these substantial farm volumes, if they exist, did not weigh on the market along with the heavy supplies of durum also reported on farm.

Oat stocks fell 25.8%, to 690,000 mt, over the past year as of July 31, the lowest since July 2015. This is below both the five- and 10-year averages for this date while is roughly equal to the average of pre-report estimates. Stocks as a percentage of total demand fell to 20% from 29.1% the year prior, roughly equal to the level seen for 2014/15.

Dry pea stocks were estimated to reach the highest level since July 2015 at 301,000 mt, up 73% from one year ago. This volume remains below both the five and 10-year averages, while is equal to the average of pre-report estimates. Lentil stocks were estimated at 405,000 mt, up 454.8% from the volume estimated for July 2016 and by far the biggest surprise of the day, well-above pre-report estimates. It is interesting to note that producers delivered only 84,400 mt into bulk channels in the first four weeks of 2017/18, which includes new-crop, which is down 26% from the same period in 2016/17.

The attached chart shows an estimate of total supplies for the upcoming 2017/18 crop year, calculated by the sum of Statistics Canada July 31 stocks estimate along with last week's production estimate, ignoring the impact of imports. Given current estimates, total supplies of all crops except for oats for 2017/18 (blue bars) are below the estimate for total supplies in 2016/17 (brown bars) and the five-year average (grey bars). Current estimates point to higher 2017/18 supplies of oats than seen in the previous crop year and over the past five-years.

Also of interest is the black line with markers, which measures the estimated 2017/18 total supplies against 2016/17 demand, as measured against the percent scale on the right vertical axis. This analysis would point to durum (82%), peas (86%), lentils (89%) and canola (96%) facing the lowest percentage of 2017/18 supplies relative to 2016/17 demand. The first three could be ruled out -- durum because of the significant increase in feed demand in the past year, as well as peas and lentils, given the significant export demand faced in the past year. This leaves canola. Given current estimates, canola supplies will total 19.551 mmt (18.2 mmt production plus 1.35 mmt carry-in), which is clearly below the 20.436 mmt demand realized in 2016/17, a signal that canola will be rationed over the upcoming year without further upward revisions in production.

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

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