The wild swing reported in Statistics Canada's 2014/15 ending stocks of canola will be debated and questioned for a long time to come. While pre-report estimates suggested an estimated range of 800,000 metric tons to 1.7 million metric tons, the final outcome was an estimate of 2.3 mmt, while the 2013/14 estimate was hiked from 2.4 mmt to 3 mmt. This volume would represent the third-highest ending stocks on record while well above the 1.848 mmt five-year average. There apparently is far more stocks out there than anyone had predicted.
Opinions within the industry range from disbelief among many to suggestions that producers share some blame by fudging responses. One response on a producer chat site suggests that canola is held on farms in western Saskatchewan and Alberta where livestock revenues and off-farm incomes in the oil sector have diminished the need to sell. The July 2 high on the November chart of $539.40 less the average prairie basis determined in DTN analysis suggests an average prairie bid of $11.70/bu or roughly $516/mt, a price one would think would lead to many bins cleaned out.
The attached graphic shows the July 31, 2015, farm stocks (blue bars) along with the July 2014 stocks (red bars) and the five-year average (green bars) across the Prairie Provinces as measured in metric tons on the primary vertical axis. Between July 31, 2014, and July 31, 2015, Manitoba stocks were estimated by Statistics Canada to fall by 60.6%, Saskatchewan by 53.4% and Alberta by 22.9%, which perhaps lends support to the theory that stocks rise as one travels west.
While Canada's farm stocks in 2015 fell to a level just slightly higher than the five-year average, 2015 ending stocks in both Manitoba and Saskatchewan fell below their respective five-year averages while ending stocks in Alberta are suggested to be 68% higher than the province's five-year average at 370,000 mt.
It may take some time before the accuracy of this data is accepted or rejected. One could look at Week 4 CGC data which indicates 920,900 mt of seed delivered by producers to the end of August. This is only 1.8% below the deliveries in the first four weeks of the 2014/15 crop year and 33.5% above the five-year average for the first four weeks. As of Aug. 31, 14% of Saskatchewan's canola crop was combined while as of Sept. 1, close to 7% of Alberta's crop was combined while the Central and Eastern regions of Manitoba were even further ahead, suggesting that deliveries are a combination of old crop and new crop and fail to speak to the old-crop volumes held on farms.
Regardless, the canola market may be showing some positive signs, with the Nov/Jan spread narrowing from a carry of $6/mt reached on Sept. 3, the day of the report, to a spread of minus $3.80/mt today, a sign of less bearish behavior on the part of commercial traders. On paper, the market has shifted from one of supply constraints early this summer to one where demand may be the limiting factor this crop year, although the market may be sending us a conflicting story.
According to ProphetX calculations, the Nov/Jan spread is trading at 34.3% of full carry and the Jan/Mar spread is trading at 35.4% of full carry, with DTN analysis viewing spreads, which represent less than 33% of full carry as being mildly bullish.
As mentioned in today's Plains and Prairies commentary, the USDA Foreign Agricultural Service Oilseeds and Product Update on China makes mention of possible conflicting reports on China's rapeseed crop potential, along with the potential need to import more than current estimates. The report makes mention of Canada's supply of canola being a possible limiting factor in meeting this demand. Watch for further signs in this Friday's USDA data release.
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Cliff Jamieson can be reached at email@example.com
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