This morning, StatsCan came out with their first production estimate for Harvest 2019, as broader markets continue to deal with geopolitical turmoil
“He who attends to his greater self becomes a great man, and he who attends to his smaller self becomes a small man.” – Mencius (Chinese philosopher)
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StatsCan Says Smaller Canola & Wheat Harvest
This morning, StatsCan came out with their first production estimate for Harvest 2019 (hence, the slightly later-than-usual delivery of this morning’s note), as broader markets continue to deal with geopolitical turmoil. On the futures board, grain markets are mixed to start the last hump day of August.
We start this morning in the United Kingdom where new Prime Minister Boris Johnson has asked the Queen to suspend Parliament.  The move is purely political as it wouldn’t allow MPs in the UK to debate a Brexit deal ahead of the October 31st deadline. Put another way, Prime Minister Johnson is using his position of power to ensure that the UK leaves the EU by Halloween, something he promised he would do on his path to becoming Prime Minister. Accordingly, the British pound this morning has lost about 1/3 of its gains made in August.
Staying in the currencies, yesterday, China’s currency, the yuan, dropped to its lowest level in 11 years (or since February 2008).  This comes as the People’s Republic is trying to make doing business with them cheaper for international investors, as Beijing battles an economy that’s starting to show some cracks as a result of the trade war with the United State.  According to U.S. President Trump, the trade war has cost 3 million Chinese factory workers their jobs. 
While the trade war is front and centre, I’ve mentioned a few times this summer that the bigger macro problem is the inflation of food prices, namely pork. This is because of the uncontrollable spread of African Swine Fever possibly culling nearly half of the Chinese hog herd this year. With the same demand for meat by a growing middle class, but not as much supply, prices must intuitively head higher. To help try and slow down food inflation, FC Stone is forecasting pork imports by China to jump by nearly 60% this year to 3.3 MMT, and then by another 30% to 4.2 MMT in 2020.  In Friday’s FarmLead Breakfast Brief, I’ll relate this data to current soybean exports to China.
StatsCan August Production Survey Results
This morning, Statistics Canada shared its first estimate of what the 2019/20 Canadian crop could look like in terms of production.  In the compilation of its farmer survey, Statistics Canada is expecting wheat, canola, corn, and soybean production to fall year-over-year in the Great White North, mainly because of a smaller harvested amount of acres. Wheat and canola yields are seen falling in Saskatchewan, the largest producer of both commodities. On the flipside, more lentils, peas, barley, and oats than initially expected should keep some bearish pressure on the prices for these crops.
Getting into the wheat harvest, durum production came in even the lowest end of the range of estimates at 4.42 MMT. If realized, that’s a 23% reduction year-over-year and 24% below the five-year average. The Canadian winter wheat crop also is down significantly year-over-year by nearly a third to 1.72 MMT. Comparably, the Canadian spring wheat harvest should climb 5% year-over-year and 16% more than the five-year average with 25.11 MMT estimated to get combined this year. At 31.25 MMT, the total Canadian wheat harvest would still be about 3% higher than the five-year average though, but 3% lower compared to the 2018/19 haul.
Comparably, earlier this month, the USDA’s attaché in Ottawa says that Canadian farmers will produce 32.65 MMT of all types of wheat.  Given the size of the Canadian wheat harvest, trade issues between the U.S. and China, and drought issues in Australia, I’m hopeful that China will continue its bigger buying trend of Canadian wheat that it started last year.  Through June, 2018/19 Canadian wheat exports to China has jumped 83% year-over-year to more than 2 MMT, the strongest since 2004.
Is StatsCan Usually Right or Wrong?
Let’s squash this right now: the answer is neither, but we do tend to see the production estimates from Statistics Canada skew higher as the crop gets into the bin. Over the past 5 years, the August production estimate from StatsCan isn’t the best barometer of what final production numbers will be. In fact, StatsCan usually underestimates all Canadian crops by an average of more than 7% in their August publication, relative to their final numbers in December.
Leaning in, StatsCan is usually more accurate for crops with smaller production like chickpeas and flax, with August report being only 0.2% above and 3.2% below final numbers in December respectively. On the flipside, in their August numbers, StatsCan tends to underestimate Canadian canola and durum harvests by an average of nearly 19% and 16%. Accordingly, the canola and durum wheat harvests could, theoretically, be much larger than what’s currently estimated by StatsCan.
While Harvest 2019 is fast approaching, so is Mother Nature. Specific to northern U.S. states and Western Canada, the threat of frost is very real. This includes some single-digit temperatures this week in central Alberta and next week across the Canadian Prairies.  Accordingly, the reality of the calendar is starting to look more and more bullish for grain prices, specifically for the crops grown in Western Canada.
Overall, this report from StatsCan could be categorized as bullish for canola, durum, winter wheat, mustard, canaryseed, and soybeans. Conversely, the numbers from Statistics Canada could be considered bearish for barley, flax, rye, peas, lentils, and even spring wheat a bit. That said, a bigger spring wheat harvest was already expected so the bigger number has likely been priced in. Thinking forward, the next major date we’re looking at on the calendar is Thursday, September 12th. That’s the day that Statistic Canada’s satellite model-based production estimates will be released, as well as the USDA’s September WASDE report.
At 8:10 AM CST in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.3304 CAD, $1 CAD = $0.7517 USD)
Dec Corn: -0.5¢ (-0.15%) to $3.658 USD or $4.866 CAD
Nov Soybeans: +1.8¢ (+0.2%) to $8.61 USD or $11.455 CAD
Oct Soybean Meal (per short ton): unchanged at $293.60 USD or $390.61 CAD
Oct Soybean Oil (cents per lbs): +3¢ (+0.1%) to 28.17¢ USD or 37.48¢ CAD
Dec Oats: -3¢ (-1.1%) to $2.64 USD or $3.512 CAD
Dec Wheat (Chicago): -5.5¢ (-1.15%) to $4.713 USD or $6.27 CAD
Dec Wheat (Kansas City): -4¢ (-1%) to $4.008 USD or $5.332 CAD
Dec Wheat (Minneapolis): unchanged at $5.11 USD or $6.798 CAD
Nov Canola: +4.3¢ (+0.45%) to $10.167/bu / $448.30/MT CAD or $7.642/bu / $336.97/MT USD
COMMODITY TRADING INVOLVES RISK AND MAY NOT BE SUITABLE FOR ALL RECIPIENTS OF THIS POST. Neither the information presented, nor any opinions expressed, constitutes a solicitation for the purchase or sale of any commodities. The thoughts expressed in this email and basic data from which they are derived are believed to be reliable, but cannot be guaranteed due to uncertainty about future events and complexities surrounding commodity markets. Those acting on the information are responsible for their own actions.