In its first canola production report for 2018, on Friday, August 31, Statistics Canada estimated this year’s Canadian canola crop at 19.2 MMT. This was lower than the average pre-report forecast of 20.7 MMT.
Thus, this can be viewed as bullish.
The projected decline in canola production is the result of (1) seeded acres dropping by 1.7% to 22.7 million acres reported in the June 2018 StatsCan acreage report), and (2) average yields falling by 9% year-over-year to 37.5 bushels per acre
There is a big question in this report that hasn’t been answered though: how has August’s Canadian weather impacted canola yields and production. We need to bear in mind that the StatsCan survey was conducted in July. Since then, the Canadian Prairies have been pretty dry and crops were under significant heat stress.
Therefore, we might expect to see the yield and production numbers in the September 19 data/model-based estimates of Canadian crop production come in a bit smaller than what we’re seeing here today. Our gut says that these numbers might be 5-10% smaller than what the August report is showing.
The other thing to keep in mind is that the August production estimate from StatsCan for canola tends to be, on average, 23% below the final production number released in December.
While we take government estimates (especially those from StatsCan) with a grain of salt, this one might take a full shaker-worth since the August weather might be so impactful. Given these growing conditions, we think it would pretty tough for StatsCan to review their August production number up by more than 1 MMT. That being said, we’re not going to count out the possibility that it could more.
In the meantime, we saw canola futures rally a bit, with the November 2018 contract trying to push back up above $500 CAD / MT. Ultimately, the market is likely pricing in this year’s crop (the third-largest ever), but obviously also a bit antsy as to what happens in the US, not just on NAFTA, but also Chinese-American relations (re: soybeans).