December 4 – Understanding StatsCan, Grain Markets Methodologies

Good Morning!

Today’s Breakfast Brief looks into what StatsCan will say about Canadian grain production on Wednesday, how wheat crops around the world are looking, and if selling cash corn and soybeans today is a good idea.

“Subjectivism is not an absolute principle; it is a necessary but not sufficient condition for sound methodology.” – Murray Rothbard (American economist)

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Grain markets today are mostly in the green, thanks to some follow-on buying from Friday’s activity.

Of note is that soybeans are back above USD 10 /bushel on the Chicago Board of Trade, which is a sellable level in many analysts’ opinion. [1]

Click here to post that next 10-20% block of soybeans on the FarmLead Marketplace.

Over the weekend, we looked back at what grain prices and markets did in November.

We’re into our first full trading week of December after a bit of a wild Friday for grain prices, as noted by Garrett in the Grain Markets Today daily column. Of significance, corn was able to post a three-week high.

March Corn Prices Hit New 3-Week High
March 2018 Corn Prices Hit New 3-Week High

 

Some colder temperatures are on the way for most grain-growing regions in the US this week (a friendly way of saying, “winter is here.” [2]

Some rain fell over the weekend in Argentina, but concerns remain that it’s not enough to reverse the drier conditions. However, it’s suggested that through December 20th, hot, dry weather is the only thing that’s in the forecast.

This is what is driving soybean prices higher this morning.

This should help to get the wheat crop harvested but won’t help the recently planted corn and soybean crops there. There’s no methodology out there that will get a crop out of the ground that doesn’t include rain.

Global Wheat Market Update

There are some rains in the forecast for Australia, but they look more monsoonal than friendly. Up to 12 inches of rain is forecasting to fall in parts of southeastern Australia. [3] With the wheat harvest somewhere between 30 – 50% complete, there are about 4 million tonnes of wheat about to get hit by this massive rainfall (or nearly 147 million bushels, if you converted tonnes into bushels at GrainUnitConverter.com)

It’s one of the worst feelings in the world to see a crop that’s ready to harvest get hit by constant water. As such, it’s not to say that those 4 million tonnes will be lost, but rather their quality will be downgraded. This could, in turn, support the idea of stronger prices for higher quality/protein wheat.

Thus far in Russia, the weather conditions have been pretty good, with relatively normal temperatures and snowfall. [4] SovEcon is already forecasted that the Russian wheat crop in 2018/19 could be 76.7 million tonnes. This would make it the second-largest wheat crop ever, after this past year’s record of 83 million tonnes (according to the USDA, albeit there are private estimates that are higher).

In Europe, the soft wheat planting campaign in France is pretty much complete. Fall durum seeding is 86% complete. Thus far, 96% of the soft wheat crop is rated in good-to-excellent (G/E) health while 86% of the French durum crop is rated G/E.

While France is doing okay, northern areas of Europe didn’t get in as many fall crops as they wanted to. Wet conditions August, September, and October in places like Germany and Poland not only made harvest a challenge but 2018/19 fall-seeding a grind as well. Thus, it’s expected that more spring wheat and spring barley will be coming off in Europe for the 2018/19 campaign. [5]

Deconstructing StatsCan Crop Production Estimates

This Wednesday, December 6th, we’ll get Statistics Canada’s updated estimates for the 2017/18 Canadian crop.

However, I’ve noted in the past that StatsCan has a history of upgrading their crops. From their first estimate to their final one, StatsCan has underestimated the Canadian crop a lot.

For example, the Canadian canola crop the last four years has been underestimated by an average of 3.2 million tonnes. This means that from their first estimate to the final number, for the past four production years, the Canadian canola crop grows by an average of 24%. The first estimate for this year’s Canadian canola crop was 18.2 million tonnes. Thus, if we’re using the average margin for error for the past four years (+24%), this means that the 2017 Canadian canola crop should end up at 22.5 million tonnes.

For spring wheat, StatsCan has underestimated Canadian output by an average of 1.75 million tonnes. This means that from their first estimate to the final number, the Canadian spring wheat crop tends to grow by an average of 8.5%. The first estimate for this year’s Canadian spring crop was 18.89 million tonnes. Thus, if we’re using the average margin of error for the past five years (+8.5%), this means that the 2017 Canadian spring wheat crop should end up at 20.5 million tonnes. If that were the case, it would top last year’s Canadian spring wheat crop!

For durum wheat, StatsCan has underestimated Canadian production by an average of 777,000 tonnes. This means that from their first estimate to the final number, the Canadian durum wheat crop tends to grow by an average of 15%. The first estimate for this year’s Canadian durum crop was 3.9 million tonnes. Thus, if we’re using the average margin of error for the past five years (+15%), this means that the 2017 Canadian durum wheat crop should end up at 4.48 million tonnes.

On pulses, in the last three years, StatsCan has underestimated Canadian peas output by an average of 355,000 tonnes. This means that from their first estimate to the final number, the Canadian peas crop tends to grow by an average of 11%. The first estimate for this year’s Canadian peas crop was 3.79 million tonnes. Thus, if we’re using the average margin for error for the past three years (+11%), this means that the 2017 Canadian peas crop should end up at 4.21 million tonnes.

For lentils, in the last three years, StatsCan has underestimated Canadian lentils output by an average of 263,000 tonnes. From their first estimate to the final number, the Canadian lentils crop tends to grow by an average of 17%. The first estimate for this year’s Canadian lentils crop was 2.29 million tonnes. If we’re using the average margin of error for the past three years (+17%), this means that the 2017 Canadian lentils crop should end up at 2.68 million tonnes.

Of course, Statscan might not have liked that I called them out so aggressively back in September and perhaps they changed their methodology.

To growth,

december-statscan-crop-production-estimates-farmlead
StatsCan has a bad habit of underestimating the Canadian grain crop

 

Brennan Turner
President/CEO | FarmLead

1-855-332-7653 (Toll-Free)
www.FarmLead.com
@FarmLead (on Twitter)

At 7:00 AM CDT in the North American futures markets (*not cash prices*):
(all prices in dollars per bushel unless otherwise indicated)
$1 USD = $1.2794 CAD, $1 CAD = $0.7816 USD)

Mar Corn: +0.5¢ (+0.15%) to $3.593 USD or $4.557 CAD
Jan Soybeans: +10¢ (+1%) to $10.043 USD or $12.739 CAD
Jan Soybean Meal (per short ton): +$4.50 (+1.35%) to $334.70 USD or $424.59 CAD
Jan Soybean Oil (cents per lbs): +0.10¢ (+0.3%) to 33.79¢ USD or 42.86¢ CAD  
Mar Oats: +0.3¢ (+0.1%) to $2.68 USD or $3.40 CAD
Mar Wheat (Chicago): +2.3¢ (+0.5%) to $4.408 USD or $5.591 CAD
Mar Wheat (Kansas City): +1.3¢ (+0.3%) to $4.388 USD or $5.566 CAD
Mar Wheat (Minneapolis): +1¢ (+0.15%) to $6.325 USD or $8.024 CAD
Jan Canola: +5.2¢/bu / +$2.30/MT (+0.45%) to $11.53/bu / $508.40/MT CAD or $9.089/bu / $400.77/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.

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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