Dec. 7 – Will Canola Prices Rally on ABARES, StatsCan Reports?

Good Morning!

Grain prices are mostly all in the green this morning, led by canola prices, which are finding some strength recently thanks to a slightly bullish StatsCan report and a weaker Canadian Loonie.

Many intelligence reports in war are contradictory; even more are false, and most are uncertain.

– Carl von Clausewtiz (Prussian Military General) 

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Will Canola Prices Rally on ABARES, StatsCan Reports? 

Grain prices are mostly all in the green this morning, led by canola prices, which are finding some strength recently thanks to a slightly bullish StatsCan report and a weaker Canadian Loonie.  

Soybean prices are the only thing that are in the red as the market starts to contemplate the effects of a Brazilian soybean harvest starting this month. [1] There are also question marks about what could happen to a record crop in Brazil if China and the U.S.  figure out how to end their trade war. [2] 

We did mention on Wednesday that soybean prices were looking for their next headline and they find them yesterday and closed lower accordingly on some new tension in the Chinese-American trade relations. The CFO of Huawei was arrested in Canada for American authorities who are trying to look if the company is violated U.S. sanctions on Iran. [3 

Australian Crop Withers in 2018 

As we’ve known for a while, crops in the Land Down Undaa have suffered significantly this year without much rain to go around. This is especially true in Eastern Australia where harvestable acres have dropped significantly from first expectations back in June when the growing campaign was just getting going. [4 

Australian barley production was suggested by ABARES earlier this week at 7.3 MMT, a drop of nearly 2 MMT from their first estimate back in June and a far cry from the 5-year average of 9.8 MMT. With this much smaller of a crop and a strong premium for feedstuffs in Eastern Australia helping keep domestic prices elevated, there are many question marks about the possible size of Australia’s barley exports campaign for the 2018/19 crop year.  

ABARES Dec 2018 Barley Production & Acres

Canola production was lowered by ABARES to 2.2 MMT, meaning that they’ll likely need to import some canola this year to meet domestic processing demands (a lot of their non-GMO canola gets shipped to Europe).  

For the pulses, Aussie chickpea production this year of 330,000 MT is a far cry from the more than 2 MMT produced just two years ago. The Australian lentils harvest is expected to reach 343,000 MT, down nearly 30% year-over-year, while a peas production number of 194,000 MT is also down 33% year-over-year.  

We’ve been eyeing the Chinese oats market for Canadian exports and this year should be the year that the trade delegates should push hard on it. This is because of production of 888,000 MT, down 20% year-over-year means that China might need to look elsewhere to meet their growing demand for oats products. 

Finally, wheat production in the Land Down Undaa was felled to just 17 MMT, down nearly 5 MMT from the initial estimate back in June and a 20% decline year-over-year. Since a lot of this decline was attributed to Eastern Australia where the higher-protein wheat is grown, there continues to be a concern in the exportable supply higher-quality wheat around the world this year. Very concretely, this is why you’re seeing some much higher spring wheat prices right now (I’ve been hearing of some targets above $8 CAD/bushel getting picked off! Nice!) 

Canola Prices Watching Loonie, Not StatsCan? 

Yesterday morning we got the most recent production estimates from StatsCan and it was a bit bearish for the likes of wheat and barley, but somewhat bullish for canola. [5] Specific for total Canadian wheat production, the 2018 harvest was raised by more than 750,000 MT from the September data-based production estimate from StatsCan to 31.77 MMT. This is a 6% jump year-over-year and slightly above the 5-year average.  

Spring wheat yields have surprised everyone, coming in at 50.5 bushels per acre, a full bushel more than the September estimate. Durum yields were also raised from the September report by 0.2 to 34.8 bushels per acre. While down from the 5-year average of 41.7, a total harvest this year of 5.74 MMT isn’t going to help durum prices without some demand to move through that sort of supply. 

StatsCan tends to be bearish for their December report and so canola prices were expecting something along those lines but production was dropped by more than 656,000 MT to 20.34 MMT. While average Canadian canola yields were dropped by 1.3 bushels per acre from September to 39.8 bushels per acre in this December report, this still beats the 5-year average of 39.5! 

Here’s a breakdown of all the crop production estimates from StatsCan and their relevant changes from previous estimates this year, last year, and the 5-year average. 

StatsCan Dec 2018 Crop Production Estimates

Canola prices are finding some strength on the weaker Loonie as well though, as the January 2019 contracts try to get back up above $490 CAD per MT. That being said, the November 2019 new crop contract is sitting at $500 CAD / MT today. However, we think historically, we tend to see a bit of an improvement in canola prices through the early part of the new calendar year as it tends to follow soybean prices and issues associated with the South American crop. Is the early soybean harvest in Brazil and the slight improvement in canola prices related this year? 

Front-Month Canola Prices - Nov. 30, 2018

One small sidenote was rye production being raised from the September estimate by nearly 15% to 236,000 MT. We’ve been saying for over 6 weeks now that if you haven’t yet sold your rye, now is the time to do so and that has been cemented by StatsCan saying there’s actually more out there than we once thought. [6] This is mainly because average yields were raised by 3.2 bushels per acre from the September estimate from StatsCan to 47.6 in this report. There are 75 different credit-verified rye buyers on the FarmLead Marketplace today so post yours & close on a price that we likely won’t see for too much longer.

Brennan Turner

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FarmLead
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About the Author
Brennan Turner

Brennan Turner is the CEO of FarmLead.com, North America’s Grain Marketplace. He holds a degree in economics from Yale University and spent time on Wall Street in commodity trade and analysis before starting FarmLead. In 2017, Brennan was named to Fast Company’s List of Most Creative People in Business and, in 2018, a Henry Crown Fellow. He is originally from Foam Lake, Saskatchewan where his family started farming the land nearly 100 years ago (and still do to this day!). Brennan's unique grain markets analysis can be found in everything from small-town print newspapers to large media outlets such as Bloomberg and Reuters.

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