Canada Markets

AAFC Updates Supply and Demand Estimates

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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As shown in this month's supply and demand estimates from Agriculture and Agri-Food Canada, a negative 727,000-metric-ton feed, waste and dockage figure was used to account for this year's record demand and end at the estimated 1.2 million metric tons of ending stocks, given current production estimates. It will take an upward revision in 2016 production in the upcoming Statistics Canada report to balance this table. (DTN chart by Nick Scalise)

Agriculture and Agri-Food Canada released the monthly Canada: Outlook for Principal Field Crops on Tuesday along with an updated view of supply and demand estimates. This report will likely not garner a great deal of attention in that all estimates are poised to change soon, given Statistics Canada's Production of principal field crops report to be released on Aug. 31, as well as the Stocks of principal field crops on Sept. 6 which may provide increased clarity to July 31 stocks of grain.

AAFC reports that, given current estimates, ending stocks of all crops are expected to be up 11% year-over-year to 14.285 million metric tons in 2016/17, near the five-year average. Stocks of grain were reported 660,000 metric tons higher than the July report, almost entirely due to a 600,000-mt increase in canola stocks as of the end of July from 600,000 mt estimated in the July report to 1.2 mmt in August. There was no surprise here, commercial stocks along as of July 31 were reported at 736,300 mt by the Canadian Grain Commission, while producer delivery patterns, historical relationships between farm and commercial stocks, futures spreads and the overall market action suggested that more seed would be carried out of 2016/17 than the 600,000 mt estimate reported by AAFC.

One further observation in the canola data for 2016/17 is a negative number reported in the residual column titled Feed, Waste and Dockage of 727,000 mt. In order to make the existing numbers balance, which include record crush and record export volumes along with the estimated ending stocks volume, a negative number was reported in this column in August. This points to the likelihood that an upward revision to 2016 production will be seen in the Aug. 31 production report which will satisfy market watchers who felt that Statistics Canada understated the size of the crop in the final estimates released in December. The revisions made can be seen on the attached chart. It is also interesting to note that AAFC's exports for 2016/17 are equal to the cumulative volume shipped in the CGC's week 52 statistics, while the CGC also reports 120,538 mt of unlicensed shipments as of the month of May which seem to be overlooked.

In total, AAFC reduced its estimate for 2017/18 production of all grains by 2.4 mmt from last month's estimates, to 86.401 mmt, a 5.3-mmt or 5.8% reduction from the estimate for 2016/17 and the lowest in total production in two years. Yield estimates for almost all crops were reduced from the average or trendline yields used in AAFC's July estimates for almost all crops in this month's estimates, although both soybean and corn yield estimates were left unchanged.

Looking at production estimates for specific crops, the largest year-over-year reduction in production is seen for durum, with production estimated to fall 2.8 mmt from 2016, given a sharply lower acreage and reduced yields. Estimated production of 5 mmt would be the lowest in five years. An expected higher quality is forecast to lead to higher exports while ending stocks are expected to fall by 52% to 1 mmt and the lowest in three years.

Wheat production (excluding durum) is seen dropping 1.7 mmt year-over-year, given higher seeded acres and lower expected yields. Estimated production of 22.3 mmt would be the smallest in two years. Ending stocks are estimated to fall by 18.6% to 3.5 mmt, which would be the lowest stocks seen in Statistics Canada tables going back to 1996.

Barley production is estimated to fall by 1.7 mmt given a decline in seeded acres and yield to 7.1 mmt, with the potential to reach the lowest production seen since the late 1960s. Ending stocks are expected to fall by 43.5% to 1.2 mmt, which would be the smallest carryout in five years.

Dry pea production is expected to fall by 836,000 mt on a combination of lower acres and yields to 4 mmt, which would be the lowest since 2015. Ending stocks are expected to fall by 60% to 50,000 mt, which would be the second consecutive drop in stocks and likely the lowest on record.

Lentil production is expected to fall by 523,000-mt year-over-year, given a drop in seeded acres and increased yields to 2.725 mmt, which would be the lowest in two years. Ending stocks are expected to fall by 125,000 mt or 38.5% to 200,000 mt, the lowest in two years.

A few crops are expected to see a year-over-year increase in production. Oat production is expected to increase by 153,000 mt, to 3.3 mmt, which is the highest since 2015, given a combination of higher-seeded acres and lower yield. Ending stocks are expected to tighten slightly to 600,000 mt, which could be the tightest stocks seen since July 2013.

A lower estimated yield combined with a record seeded acres of canola are expected to result in a slightly higher production of 18.6 mmt, which would be a record production by a narrow margin. Demand is expected to fall very slightly, resulting in an expected 50% reduction in ending stocks to 600,000 mt, the fourth consecutive annual decline in stocks. This would be the smallest carryout seen since July 2013.

Increases in production are also expected for row crops. Corn production is expected to increase by 381,000 mt year-over-year, given a combination of increased acres and slightly lower yields. Ending stocks are expected to slip by 300,000 mt but remain burdensome at 2.4 mmt or 16.7% of use.

The largest year-over-year increase in forecast production is seen in soybeans, with a combination of record acres and a drop in yield estimated to lead to a record 8.025 mmt of production. Despite a record demand estimate, ending stocks are expected to increase by 90,000 mt to 465,000 mt over the crop year, the highest stocks since 2007 but remain a tight 5.7% of total demand.

While this data may provide food for thought it will be the data streaming from the combine yield monitors that matters most.

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

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