Canada Markets

Pulse Trade Acknowledged in March Trade Data

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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The blue bars represent the March 31 stocks estimates of canola over the last 15 years as reported by Statistics Canada, while the brown bars represent the April through July disappearance. The black line shows the trend in the resulting ending stocks estimate. Friday's March 31, 2017, stocks at 6.6 million metric tons is almost equal to the April through July usage in 2016. (DTN graphic by Nick Scalise)

Statistics Canada released their estimates for March 31 stocks of principal grains on Friday, perhaps adding to the uncertainty surrounding old-crop supplies while producers across the country struggle to get into the field to finish the 2016 harvest in certain areas and seed the 2017 crop.

Canada's all-wheat stocks as of March 31 were reported at 16.6 million metric tons, up 15.5% from last year and only slightly below the 16.8 mmt five-year average. This was well below pre-report trade estimates released by media earlier in the week, which pointed to an average estimate of 18.3 mmt.

Stocks of wheat (excluding durum) were reported at 12.522 mmt, up 849,000 metric tons, or 7.3%, to a two-year high, while is still 9%, or 1.2% below the five-year average of 13.7 mmt. This is below the level of stocks expected by the trade, according to media reports of pre-report estimates, with an average of pre-report estimates averaging 13.1 mmt. December through March disappearance is calculated to be slightly below the 2016 pace and slightly higher than the five-year pace, which suggests higher-than-expected feed disappearance given that exports are a known quantity and are below both the 2016 pace and the average pace of the last five years. Over the past five years, April through July disappearance has averaged 8.307 mmt given Statscan stocks estimates, which would point to ending stocks at the end of July in the 4.2 mmt area, below the 4.5 mmt estimate forecast by AAFC.

Durum stocks as of the end of March were reported at 4.078 mmt, up 1.376 mmt, or 50.9%, from March 31, 2016, to the highest level in seven years. This is 1 million tons higher than the five-year average for this date, but still well below the average of pre-report estimates that averaged 5.2 mmt. Given Statscan stocks estimates, December through March disappearance is well ahead of the 2016 pace and the five-year average. Given that exports are trailing year-ago volumes, this would also infer higher-than-expected disappearance in feed markets.

Friday's data will continue to be questioned, given that the higher-than-expected feed disappearance is based on a residual number in the supply and demand calculation with no hard data to support it. One Twitter communication suggests the numbers are "significantly wrong." Barley disappearance is lower, which supports usage of wheat, although Canfax April 1 cattle on feed in Saskatchewan and Alberta was reported at 906,273 head, which is down 4% from the same date in 2016.

Perhaps one of the most debatable numbers in Friday's report was the canola stocks estimate. Going into Friday's report, the range of pre-report estimates was reported by media from 5 mmt to 8.4 mmt, with an average of 6.7 mmt. That is an extremely wide range of responses, eclipsing the range of all other commodities. Friday's report showed March 31 stocks at 6.6 mmt, down 2 mmt, or 23.3%, from last year and a four-year low. The five-year average is calculated at 7.2 mmt.

Given this report, the challenge for the canola industry is this: The April through July usage is calculated at 6.5 mmt based on Statscan numbers, equal to the March 31 stocks, which would suggest we could be heading to extremely low levels of stocks. The trend in March 31 stocks and April through July usage is seen on the attached chart. Rationing has yet to begin when one takes into account that both exports and crush are running well-ahead of last year's pace.

In late-morning trade, the July contract gained as much as $7.20/mt, but failed to hold at the session highs and closed $3/mt higher. Given that the July/Nov spread strengthened only $0.10/mt this session, Friday's move was largely a result of speculative noncommercial trade, indicating that commercials failed to show significant concern. This is despite that fact that significant acres remain unharvested from 2016 and the quality may limit the potential uses for it when it does come off. If ending stocks really were heading to zero this crop year, combined with a late start to planting across the prairies, one could also expect to see strength in the Nov/Jan spread. Instead, this spread weakened $0.80/mt over the week to minus $4.80/mt, a sign of growing commercial bearishness.

March 31 oat stocks were estimated at 1.663 mmt, down 8.5% from 2016 and just slightly below the five-year average of 1.8 mmt. This fell near the middle of the range of pre-report estimates. Over the past five years, March through July disappearance is pegged at 988,000 mt, which would suggest ending stocks in the neighborhood of 675,000 mt, which is equal to the current AAFC estimate of 2016/17 carryout.

March 31 barley stocks were estimated at 4.6 mmt, up 22.6% from 2016 and 25% higher than the five-year average of 3.7 mmt. This also falls within the range of pre-report estimates. December through March disappearance is calculated lower than 2016 and the five-year average, pointing to the impact of lower cattle-on-feed numbers along with increased competition from wheat and barley in the feed ration. The average April through July disappearance over the past five years is calculated at 2.3 mmt, which points to potential ending stocks in the range of 2.3 mmt, which compares to the current 2.050 mmt forecast by AAFC.

Lentil stocks as of March 31 are estimated at 1.070 mmt, up 92.8% from the previous crop year but remains lower than the five-year average of 1.173 mmt. 2016 acres were estimated up 45% from the previous year and production was estimated up 27.9%. Lentils were reported in Statistics Canada's March Merchandise Trade report as a significant contributor to Canada's record exports in March (all goods), while year-to-date exports of lentils are running 5.6% higher than in 2015/16 as of March data. Over the last five years, April through July disappearance averaged 663,000 mt, which would point to ending stocks near 407,000 mt, which is close to the current AAFC estimate of 425,000 mt.

Dry pea stocks as of March 31 are estimated at 1.7 mmt, a two-year high that is up 25.8% from last year and above the five-year average of 1.4 mmt. Over the last five years, April through July usage has been roughly 1 mmt, with average movement pointing to a 700,000-mt ending stocks level, which is below the current AAFC estimate of 875,000 mt.

Corn stocks as of March 31 were pegged at a record 8.360 mmt, up 7.7% from last year and well above the five-year average of 6.9 mmt. A slight drop in farm stocks since March 2016 across the country was offset by a significant increase in commercial stocks. Ontario farmers have seen farm stocks drop by 640,000 mt to a five-year low, while Manitoba producers saw farm stocks increase by 335,000 mt in the last year to a record 710,000 mt. The five-year average April through August disappearance is calculated at 5.3 mmt, which suggests that ending stocks could be in the neighborhoods of 3 mmt, which compares to the current AAFC estimate of 2.250 mmt. January through March disappearance is calculated lower than both 2016 and the five-year average.

Soybean exports as of March 31 were estimated at 1.855 mmt, down 1.7% from 2016 and slightly higher than the five-year average. A year-over-year drop in farm stocks across the country was partially offset by an increase in commercial stocks. Stocks on farm fell year over year in Quebec and Ontario, while Manitoba producers saw stocks increase over the past year given rapidly expanded acres. Over the past five years, the average April through August disappearance averages 1.5 mmt, which would support a 2016/17 carryout of 355,000 mt, higher than the current 300,000 mt carryout estimate from AAFC.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

(CZ)

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