Canada Markets

Comments pointing to better-than-expected soybean yields in Ontario could be the deciding factor in keeping Canada's multi-year trend of rising production intact.

Statistics Canada's Production of principal field crops report, based on July estimates and released Aug. 23, pegged the country's production at 5.827 million metric tons (yellow bar on attached chart), which is down 8.5% from the current 2015 estimate of 6.371 mmt. This was due to a modest .3% decline in estimated harvested acres across the country while estimated yields were estimated to fall in each of the largest producing provinces.

Statistics Canada's Aug. 31 model-based field crop estimates, released Sept. 20, increased yield potential in Quebec, Ontario and Manitoba. Total production was boosted by 146,000 metric tons (green bar), with Canadian production potential estimated at 5.973 mmt, still falling short of 2015 levels.

Estimates are one thing, while actual combine results are quite another. Over the years, I've become accustomed to southern Ontario farmer and DTN contributor Philip Shaw pointing to the challenges in estimating the potential for the soybean crop. Philip's recent November/December Monthly Market Trends written for Grain Farmers of Ontario points to the potential for early summer dryness in Ontario leading to reduced disease pressure given rains received in August. Phil's estimates suggest the potential for an above-average yield in Ontario in 2016.

In order for the country's production to top 2015 levels and move back into record territory, yield gains realized will have to result in an incremental 400,000 mt of production, or the difference between the 6.371 mmt produced in 2015 (last blue bar) and the most recent 2016 estimate of 5.973 mmt (green bar).

Ontario's five-year average is 46.8 bushels per acre, or 2.7 bpa higher than the most recent model-based estimates. Coincidentally, if applied over the estimated 2.7 million harvested acres in the province, this alone would contribute close to 200,000 mt of incremental production.

The September model-based analysis by Statistics Canada estimated Manitoba's crop at 39.7 bpa, while the province's last crop report showed provincial government yield estimates ranging from 40 to 45 bpa. For every bushel/acre yield increase over 40 bpa, the province's production increases by close to 57,000 mt based on the current 1.6 million acre harvested acre estimate.

The bottom line, Canada should have more-than-anticipated soybeans for sale. This comes at a good time when China's most recent import data shows the country maintaining a record pace of imports, while the USDA reported much higher-than-expected October domestic soybean crush Tuesday.

Also supporting Canada's potential in export markets is Canadian dollar weakness. Markets are pointing to the real possibility of a U.S. rate hike in December, while there's ongoing discussion surrounding the possibility of successive hikes in 2017, which will intensify pressure on the Canadian dollar relative to the USD. Canada's Bank of Canada Deputy Governor tweeted today "We are free to adjust policy interest rates in context of Canadian economic conditions and do not need to move in step with the Fed," perhaps bracing Canadians for a potential rate cut which would result in an even lower CAD/USD exchange.

This also comes at an interesting time in terms of global markets. As reported by DTN Analyst Todd Hultman in his recent piece It's Been Real, focusing largely on the recent weakness of Brazil's currency, we are reminded that the USDA is forecasting Brazil's production at a record 102 mmt. At the same time, crop year ending stocks are viewed as tight and leave little room for surprises. As well, President-elect Donald Trump has vowed "to get tough on trade and specifically on China", which could make things interesting for competing exporters.

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

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