Monday's Statistics Canada December 31 stocks report perhaps attracted little attention and led to a muted market reaction overall. The potential existed for a surprise in Monday's canola data following Statistics Canada's December release of 2017 production estimates with production of canola estimated higher than the highest trade estimate. This was despite challenging growing conditions faced in many areas of the Prairies.
In the case of canola, December 31 stocks were estimated 5.7% higher year over year to a record 14.1 million metric tons, two million metric tons higher than the five-year average. Stocks in commercial facilities were 228,000 metric tons lower than December 2016 at 1.605 mmt, while farm stocks climbed 1 mmt year over year to a record 12.5 mmt.
Media reports and social media debate leading up to this report suggest that the record 2017 production may have been over-stated, which may be supported by current market signals. The attached chart shows where the estimated stocks are located. Manitoba producers are said to be holding 1.7 mmt, up 18.1% or 260,000 mt and below the record volume reported for the province for December 31 2009. Saskatchewan producers are estimated to hold a record 6.410 mmt, up 4.2% or 260,000 mt from last year. Alberta producers are estimated to hold a record 4.4 mmt, up 12.1% or 475,000 mt from 2016.
Are producers holding canola as tight as what is reported? Despite total crop-year supplies being 1 mmt higher than government estimates show for 2016/17, producer deliveries into licensed facilities through the first half of the crop year are 3% behind the same week last year. Spot basis is seen narrowing or strengthening, with Monday's average Prairie basis calculated at $17.15/mt under the March, as compared to $29.75 under this time last year when reported stocks were tighter. Basis for July 2018 delivery averages at $14.84/mt, despite the record stocks reported on farm that could be expected to lead to late crop-year deliveries.
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The December 31 stocks estimate combined with the 2017 Jan through July 31 disappearance of 12 mmt would suggest ending stocks could even be higher than the 2 mmt estimate currently seen in AAFC's January supply and demand estimates, which is currently viewed as 652,000 mt higher than estimated for the 2016/17 crop year.
While the market ended higher on Monday given the weaker Canadian dollar trade, the nearby March/May spread strengthened to minus $5.60/mt, signaling a less-bearish response by commercial traders. This could be viewed as a neutral level of carry. As well, the weekly chart continues to show sideways momentum as traders seek direction.
One further observation. A significant year-over-year increase in ending stocks combined with reports of a record acreage expected to be seeded in 2018 might be expected to lead to bearish signals in the new-crop trade, although this is not the case. The November contract closed closer to the upper-end of the sideways range seen over the past eight weeks. Meanwhile, the Nov18/Jan19 spread closed at minus $4.30/mt (Jan over the November), which could also be viewed as a neutral level of carry.
DTN 360 Poll
Watch for the next DTN 360 Poll that asks if you agree with the significant increase in farm stocks of canola as reported in Monday's Statistics Canada report. You can weigh in on this and other polls which are found at the lower right of your DTN Canada Home Page.
Cliff Jamieson can be reached at email@example.com
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