Past work in the Canada Markets Blog has presented rationale which supports higher canola production to be revealed in the upcoming Statistics Canada report, due to be released Dec. 4 at 7:30 a.m. CT. First is the tendency for a conservative October estimate, with final annual production averaging 14.4% higher than the October estimate over the past five years, from 2010 to 2014. This ranges from a 3.8% increase in 2012 (final production over the September estimate) to a 22.6% increase in 2010.
As well, the timing of the data collection for the Oct. 2 release of the September estimates is viewed as problematic. The survey was conducted between Sept. 3 and Sept. 13. Saskatchewan Agriculture reported that the province's harvest was 52% complete as of Sept. 14 while on Sept. 15 Alberta Agriculture reported that the harvest was only 37.4% complete. Both provinces continued to show improved yields through to the end of harvest.
Improved yield estimates released by Saskatchewan Agriculture since the release of the September production estimates indicate an increased production of 704,209 metric tons based on Stats Can's harvested acre estimates, while improvements in Alberta Agriculture's yield estimates would add a further 598,748 mt, which would suggest an additional 1.3 million metric tons of production and supports the 15.6 mmt estimate released this week by Reuters and the 15.5 mmt which CNS reveals as where most of the pre-report estimates came in.
It may take some time to determine how such an increase in production will be accepted by the market. The weakening spreads would suggest an increasingly bearish view of fundamentals held by commercial traders, with both the March/May and May/July spreads reaching their strongest inverse the week of July 6 and trending weaker since. While nearby spreads are viewed as bearish given cost-of-carry calculations, the May/July spread at minus $4.90/mt could be viewed as being neutral from the commercial trader's perspective.
Here's a thought on the demand side. Over the past five years, from 2010/11 through 2014/15, an average of 30.5% of the crop year's total exports was moved through licensed channels as of the Canadian Grain Commission's week 16 data. The CGC's most recent week 16 data indicates licensed exports at 2.963 mmt, ahead of last year's pace which resulted in record exports of 9.154 mmt. Should disappearance through exports take place at the five-year average pace, with 69.5% of the exports taking place between week 17 and week 52, this would extrapolate to total exports of 9.7 mmt, or 1.7 mmt above the current AAFC forecast of 8 mmt.
As well, over the same five-year period, an average of 31.1% of the country's total canola crush was reported by COPA as of the late November report. As of the most recent report for the week ending Nov. 25, a total of 2.486 mmt had been crushed, also above the 2014/15 cumulative volume for a similar period which led to a record 7.357 mmt crush for the crop year. Once again, the same extrapolation can be made. Should disappearance through crush take place at the five-year average pace, with 68.9% of the volume crushed between late November and the end of July, crush could reach 8 mmt and well above the current AAFC estimate of 7.4 mmt.
Only time will tell what the industry will face from the demand side, but the point is that it may not be a stretch for demand to offset a volume increase presented in Friday's report.
Cliff Jamieson can be reached at email@example.com
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