Canada Markets

Rabobank Explores Canada's Wheat-Canola Battle for Dominance

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The blue bars represent the new-crop November canola/December spring wheat spread as reported on the first trading day of December each year, as measured against the primary vertical axis in Canadian dollars/metric ton. The bar for Dec. 1, 2017 represents the spread for 2018. The brown line with markers represents the ratio of seeded canola acres to wheat acres realized the following crop year, as measured against the secondary vertical axis. (DTN graphic by Nick Scalise)

Rabobank has released a number of baseline reports in recent months, while recently releasing a December report titled Wheat and Canola Battle for Dominance, for a look at Canada's acreage trends through 2024/25. While the combination of these two crops (canola and all-wheat, including durum) is expected to make up more than 70% of Canada's seeded acreage, the author sees a dance between the crops over the years to come as they take turns playing a leadership role.

Producers seeded 22.997 million acres of canola in Canada in 2017, according to Statistics Canada; it was above the all-wheat acreage estimate of 22.391 million acres and the first time that canola acres have surpassed wheat. Over the baseline period, the author views demand strength as a key factor behind the push for acres, in this case, the demand for vegetable oils when compared to the demand for high protein wheat. Both face challenges in global markets as more vegetable oils become available, given competing sources of supply while competitors in the wheat markets adjust to compete in the high-protein space.

As a result, Rabobank sees canola acres holding above wheat for the short term (harvested acres), losing to wheat during the middle of the study period while reclaiming top spot or the most acres once again late in the period. Canola acres are forecast to approach 24.7 million acres by the end of the study period.

A chart provided with this study shows canola exports reach a high in the 2018/19 crop year of roughly 12.7 mmt, while gravitating back to just over 11 mmt by 2024/25. The key in this industry is said to be expanded crush, which is expected to grow from close to 9 million metric tons this crop year to over 11 mmt by 2024/25, very close to matching forecast export demand. According to Rabobank, it will take an increased crush or lower acres in order to control the growth in stocks over the baseline period.

Risks reported in the model include:

-- Potential trade disruptions due to NAFTA

-- Increased competition in the vegetable oil or global wheat markets

-- Yield variability

-- The effects of both disease and weeds linked to an expanded canola acreage

-- Canadian dollar volatility.

Will canola acres exceed wheat again in 2018? As seen on the attached graphic, the year-over-year change in the November canola/December spring wheat future, measured in Canadian dollars/metric ton, as of early December each year, shows a direct bearing on the ratio of seeded acres the following spring for the next crop year. Over the past five years, this spread has only fallen once on a year-over-year basis, from $234.02/mt for the Nov 14/Dec 14 spread to $141.47/mt a year later. This led to a decline in the ratio of canola acres to wheat acres, from 87% to 85.7% the following year.

Given a year-over-year decline in the blue bars at the right side of the chart which signifies the year-over-year change from 2017 to 2018, this could imply a reduction in canola acres relative to wheat, with the potential for wheat to reclaim the largest acreage for 2018/19.

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