Canada Markets

As expected, Statistics Canada lifted production estimates for almost all crops in Friday's September estimates of principal field crops report. There was little immediate reaction in the markets as the production increases were widely expected, while there are still many reasons to believe that production remains understated in this report.

First of all is the timing of the data collection. Data collection was from Sept. 3-10, representing only the early stages of harvest. For example, on Sept. 9 only 30% of the Saskatchewan harvest had been completed, while only 19% of the harvest had been completed in Alberta as of Sept. 10, as reported in the respective provincial crop reports. Reports of pleasant surprises and the use of the word "exceptional" to describe some of the crop yields seen through harvest suggests that there will be a further increase to come.

Another factor which leads to understated crop production is due to the fact that Stats Canada is no longer collecting production data for Newfoundland and Labrador, PEI, Nova Scotia, New Brunswick and British Columbia in various reports throughout the year. This volume represents what Statistics Canada reports as 2 to 4% of the national total. In the case of British Columbia, 2012 production totaled 83,000 metric tonnes of canola, 49,000 mt of oats, 56,000 mt of barley and 96,000 mt of wheat. 2013 production in these provinces will be accounted for in final production data to be released in the November report of the Production of principal field crops, to be release on Dec. 4.

Lastly, this report tends to be conservative in nature and tends to understate actual production. In the 2008 to 2012 period, final production estimates for spring wheat averaged 5.7% higher than the September estimates, while durum production averaged 5.2% higher, canola production averaged 16.3% higher, corn averaged 8.9% higher, soybeans 7.5% higher and peas averaged 12.6% higher. Barley is one crop that has seen a tendency for the September estimate to be higher than the final production figure, with the five year average indicating September production to be 1% higher than the final production figure.

Canada's all-wheat production estimate of 33.026 million metric tonnes breaks the previous all-wheat production record of 32.098 mmt set in 1990, as seen on the attached chart. Of interest here is that this production is estimated by Stats Canada to have been achieved on 27.5% fewer harvested acres than 1990, while 2013 yields, reported to average 48 bushels per acre, is 41.6% higher than the 1990 level.

The 33.026 mmt wheat production fell within pre-report trades estimates which ranged from 30.7 mmt to 34.5 mmt, while is 21.4% above 2012 production.

At 5.579 mmt, durum production is also within pre-report trade expectations which ranged from 5.2 to 6.2 mmt. The average yield of 40.7 bpa for Saskatchewan is directly comparable to the last yield estimate of 40 bpa from Saskatchewan Agriculture, which is the simple average of the yield estimates across the four southern growing regions as found in the Sept. 9 weekly crop report.

Canola production for 2013/14 was reported at 15.963 mmt. This falls within the 14.8 mmt to 17.5 mmt pre-report estimate, although it does fall below many of the estimates which have been floated in the trade, including various estimates of 17 to 18 mmt of production. This production level would indicate a fresh record for canola, exceeding the 2011/12 record of 14.608 mmt and also exceeding the 2012/13 production of 13.869 mmt by 15.9%. In 2007, the Canola Council of Canada set a goal of achieving 15 mmt of production (and demand) by 2015, a goal which has been broken two years early, assuming the 15 mmt of demand is achieved.

This report could perhaps be viewed as bullish for canola, given that the 2011/12 disappearance was 15.7 mmt and the fact that the canola crush has since expanded on both sides of the border, meaning that canola stocks could once again finish tight in 2013/14 given this scenario, although it is likely that a great deal of the trade will continue to view canola production to be much higher than reported. Today's market action indicates only light commercial buying as evidenced by the futures spreads.

Oats production at 3.163 mmt is within the 2.8 to 3.4 mmt pre-report trade estimates, while 16% higher than 2012 production. Barley production, estimated to be at 9.247 mmt, is also well within the pre-report trade estimate which ranged from 8.5 to 9.8 mmt, while 18% above year ago production.

Row crop production was estimated slightly below 2012 levels, with corn production at 12.943 mmt just .1% below 2012 production. Soybean production is expected to fall 3.9% from 2012 levels to 4.817 mmt.

Dry pea production is expected to reach 3.781 mmt in 2013/14, which is above the July estimate by 477,000 mt, while 13.2% above the 2012/13 production level. The Stats Canada estimate for Saskatchewan yield of 39.9 bpa should prove to below actual levels achieved given that the last yield estimate supplied by Saskatchewan Agriculture indicated an average yield of 42 bpa across the six growing regions. This alone would add an additional 123,000 mt to the balance sheet. Lentil production is expected to reach 1.709 mmt, which is 136,000 mt above the July estimate and 11.1% above 2012/13 production.

While the production numbers reported were widely accepted prior to release, the report may have contributed to weakness in today's futures trade. Nearby wheat futures fell 2 1/4 to 5 1/4 cents across the three classes, while November canola closed $6.60/mt lower, as if confirmation from this report was needed to reassure traders' actions.

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

(ES)

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