Hotter temperatures, less rain estimated in weather reports, and the increasing use of the word “frost” in forecasts all have grain prices sneaking up higher as we start into the swathing/harvest crunch time.
There is much discrepancy in the market as to how much damage the heat, the smaller amounts of rain, and/ or an early freeze may do, which is why companies such as Goldman Sachs and FC Stone still believe a record corn and soybean crop in the United States is on the horizon, while the USDA is less optimistic, as shown in their August supply and demand estimates report.
Recently, Statistics Canada came out with their July estimate of principal field crops and it came in largely within expectations. A record canola crop of 14.7 million tonnes is expected to come off the land this fall as producers are looking to cash in on high global demand for oilseeds. Mostly helping the increase was an increase in the average yield to 33.7 bushels per acre. As a result, despite lower harvested acres expected across the Prairies, each province is likely to see a higher production number than last year (Saskatchewan: up 16.6 per cent to 7.2 million tonnes; Alberta: up 5.6 per cent to 5.2 million tonnes; and Manitoba: up 10.7 per cent to 2.3 million tonnes)
The StatsCan report was bearish with wheat as more than 30 million tonnes are expected to be harvested this year in Canada (30.6 million tonnes to be exact). More cereals in general were planted this spring as the late seed forced the hand of many producers to go with grains of shorter varieties. It’s estimated wheat yields in Alberta will reach a record average of almost 50 bushels per acre. Record average yields are also anticipated in barley and oats at 64.1 and 79.4 bushels per acre respectively. Total production of rye is likely to fall over 53 per cent from last year to 156,700 tonnes. On the pulse side of things, lentil production is seen 6.8 per cent higher over 2012 to 1.573 million tonnes and dry pea production will be up 16.8 per cent to 3.3 million tonnes.
The record canola crop here in Canada, combined with a record rapeseed crop in Europe, record soybean production in the U.S., and record soybean production in South America has analysts from the Dutch firm Rabobank saying: “At the end of all this there’s just going to be a massive oilseed crop globally. (We) don’t see as much upside risk in the market as (we) do downside.” The risk of frost is out there though as some parts of Australia and even here in Alberta have seen temperatures dip below zero degrees Celsius.
Nonetheless, if we do see the ideal temperatures materialize, the crops will be the among the biggest ever produced and you can expect a sharp sell-off in the market. There is some weather risk being built into the canola and wheat complexes here in Western Canada but, again, should the crop come off without any issues, expect those premiums to dissipate quickly. End all, be all — some of the price rallies we’re seeing right now are a good opportunity to lock some of your crop in at prices above the average estimates for the rest of the year.
Brennan Turner is originally from Foam Lake, Sask., where his family started farming the land in the 1920s. His weekly column is a summary of his free, daily market note, the FarmLead Breakfast Brief. He can be reached via email (b.turner@farmlead.com) or phone (1-855-332-7653).
— FarmLead Breakfast Brief