December 4, 2009

 

Canadian canola, wheat estimates exceed expectations

Most market participants had expected Statistics Canada to raise crop estimates Thursday (December 3), but the canola and all-wheat were even higher than predicted.

 

Statistics Canada pegged 2009-10 (August-July) canola output at 11.825 million tonnes, up 15.2 percent from its previous estimate and above the high end of analysts' expectations. Last year, canola output totalled 12.642 million tonnes.

 

"If the canola number is true, ending stocks of the commodity are going to be in excess of 2.0 million tonnes," said Ken Ball, a broker with Union Securities Ltd. in Winnipeg. Ending stocks, also called carryout, are what's left after supply and demand variables have been taken into account.

 

Ball said he felt the production number for canola was overstated and did not take into account the extremely poor yields from Alberta due to the extremely bad growing season.

 

The yield potential in Alberta was indeed very poor, agreed Mike Jubinville, an analyst with the advisory service ProFarmer Canada. However, the production figure for canola was amplified by record yields in both Saskatchewan and Manitoba.

 

Jerry Klassen, an independent analyst and futures trader, warned canola ending stocks could hit a record 3 million tonnes if demand for the commodity does not arise from China based on the production numbers released by the government.

 

"I think the yields for canola are also being overstated," said Ron Frost, an analyst with the Frost Forecasting Corp. of Calgary.

 

Frost said that a lot of the canola harvest was conducted under wet conditions and that once the product has been dried and both shrinkage and spoilage has been accounted for, the production number for the commodity may actually be closer to 11 million or at most 11.25 million tonnes.

 

Statistics Canada estimated 2009-10 all-wheat output at 26.515 million tonnes, up nearly 8percent from its previous estimate and well above analysts' predictions. Last year, all-wheat output totalled 28.611 million tonnes.

 

"There was definitely more wheat around than anticipated, with yields for spring wheat and durum coming in above expectations," Jubinville said.

 

He said the market had expected higher durum yields, but the bigger surprise was the jump in spring wheat yields.

 

"This jump in spring wheat and durum yields could add as much as 2.0 million tonnes to the carryout estimate for all-wheat," Jubinville said.

 

Klassen said the all-wheat production figure definitely had bearish implications coming in at least 1 million tonnes above expectations. He said the figure was also above the expectations of the Canadian Wheat Board.

 

"Canada's all-wheat protein content may be only average, but the quality of the crop was above expectations," Klassen noted.

 

Canada's oats output in 2009-10 was pegged by Statistics Canada at 2.798 million tonnes, which was below pre-report projections that ranged from 3.000 million to 3.400 million tonnes. Oats output in the previous report had been pegged at 2.899 million tonnes, and last year's production was 4.272 million.

 

"There is no doubt in my mind that the oat figures from the government agency was surprising and may be adjusted upwards in future reports," Ball said.

 

Jubinville said, "Most participants were not expecting a drop in the oats output estimate given the indications from the producers that yields were better than expected."

 

Jubinville said that if the oats number is as small as the government agency claims, then the longer-term price outlook for the crop will be improved significantly.

 

"There will be a need for the industry to work through the large carryover supply of oats from the 2008-09 season, but once that has happened, stocks of the commodity are going to tighten quickly," Jubinville said.

 

Because of the tight supply situation, oat prices in the cash market were seen holding steady and possibly firming in the near future, Jubinville said.

 

As for the production estimates for barley, flaxseed and peas, the industry analysts called the numbers mainly neutral.

 

Statistics Canada pegged 2009-10 barley output at 9.517 million tonnes, which was in line with pre-report expectations. Pea output was pegged at 3.379 million tonnes, slightly above pre-report estimates. Flaxseed production in 2009-10 was placed at 930,000 tonnes, just below analysts' expectations.