Latest federal supply/demand numbers way above expectations

Canola’s underlying fundamentals remain supportive

The general consensus within Canada’s grain trade is that Western Canada’s crops are unlikely to see much improvement from current conditions at this time.

The ICE Futures canola market fell off its highs during the week ended July 23 as a slight improvement in Prairie weather conditions was enough to spark a selloff. Activity in outside markets contributed to the losses, but the underlying fundamentals remain supportive for the Canadian oilseed and canola managed to find its legs as the week progressed.

Agriculture and Agri-Food Canada (AAFC) released updated supply/demand tables that included a surprisingly large canola production estimate for 2021-22 at 19.9 million tonnes. While revised down slightly from the June estimate, that would still be up from the 18.7 million tonnes grown the previous year and well above the sub-17 million-tonne crop most industry participants expect given the hot and dry growing season. The spring wheat number was also deemed bearish, with actual Canadian wheat production likely millions of tonnes smaller than the 31.4 million tonnes forecast by the government agency.

AAFC did note the uncertainty caused by the drought in its accompanying commentary, but it typically takes its cue from Statistics Canada survey data when it comes to yields and production. Those updated numbers won’t be out until the end of August. While the Canadian industry is well aware of the process, any international eyes on that ‘official government’ canola number would be understandably surprised, thinking that maybe Canada’s crops weren’t as bad as everyone was saying.

The general consensus is that crops are bad and unlikely to see much improvement at this time.

A 17 million-tonne or smaller canola crop is quite a different story than a 19.9 million-tonne crop, and prices will need to keep at a level to ration demand. What that level is, though, remains to be seen, with canola bids still trading relative to other markets such as soybeans and palm oil.

Soybean futures at the Chicago Board of Trade were also trading off shifting weather forecasts during the week. Northern growing regions in Minnesota and the Dakotas are dealing with drought conditions similar to Western Canada’s, but crops in the bulk of the Midwest are generally in better shape. Soybeans and corn both moved lower overall during the week, but held within their sideways ranges.

Meanwhile, activity in wheat has been choppy, as the spreads between Minneapolis spring wheat and the winter wheats saw some adjustment. Condition ratings for the U.S. spring wheat crop continue to deteriorate and there are also plenty of question marks on the size of Canada’s crop. Issues with winter wheat crops in Europe and the Black Sea region were also being played up in the wheat markets, although the advancing U.S. winter wheat harvest should be a nearby bearish influence.

About the author

Columnist

Phil Franz-Warkentin - MarketsFarm

Phil Franz-Warkentin writes for MarketsFarm specializing in grain and commodity market reporting.

Phil Franz-Warkentin - MarketsFarm's recent articles

Comments

explore

Stories from our other publications