StatsCan Confirms Drought, Smaller Harvest
Grain futures headed lower this past week as some better crop reports and demand concerns, namely the impact of Hurricane Ida on U.S. Gulf of Mexico export operations, weighed on the complex. However, for the month of August, all but corn and soybeans saw positive gains as drought conditions supported canola, oats, and especially wheat as it deals with smaller harvests in 3 major exporting countries of the world: Russia, United States, and Canada. Going into this week’s holiday-shortened trading week, most traders’ attention will continue to be paid on harvest activity, but also the USDA’s next WASDE report, released on Friday, September 10th.
In last week’s column, we looked at Agriculture Canada’s most recent estimates for this year’s harvest, which showed some significant downgrades compared to their previous estimate, as well as that of Harvest 2020. As a quick refresher, AAFC forecasted durum yields at 26.8 bu/ac for a total harvest of 3.83 MMT, while non-durum wheat average yields were estimated at 36.4 bu/ac for a total haul of 16.4 MMT. All in, Agriculture Canada pegged the total Canadian wheat harvest at 20.2 MMT. This was well below the USDA’s August WASDE estimate of 24 MMT and this past week’s estimate from Statistics Canada of 22.95 MMT.
This 4 MMT range of estimates is something to be cognizant of, but also remember they were published based on data at various times throughout the growing season. For this most recent publication from Statistics Canada, they shared that, “For the July survey, yields are collected by satellite imagery, historical field crop survey estimates, agroclimatic information and data from crop insurance.” More or less, StatsCan’s yield and production models don’t include any accounting of the continued hot, dry weather that most of Western Canada saw in August. Therein, I would expect that StatsCan’s estimates will trend lower over the coming weeks and months as both August weather and realized production data start to come in.
Digging into StatsCan’s numbers though, for spring wheat, average yields in Western Canada are down drastically in Alberta and Saskatchewan, but have fared pretty well in Manitoba and are actually above the five-year averages in Ontario and Quebec. As a reminder though, planted spring wheat acres were down almost 10% this year, which helps explain the significant, nearly 40% year-over-year-decline in Canadian spring wheat production. With nearly 10 MMT less spring wheat harvest in the Canadian Prairies, this intuitively will mean demand rationing, with exports likely to be hit the hardest.
Meanwhile, durum crops continue to show the biggest year-over-year production losses. Average yields in Saskatchewan are down by a third (or 13 bu/ac) to 28.2 bu/ac and Alberta yields of22.7 bu/ac are less than half of what they were a year ago (or 26 bu/ac lower). Nationwide, StatsCan is expecting just under 4 MMT to be taken off this year, a drop of nearly 2.6 MMT or 40% year-over-year. For the record, I actually think that Agriculture Canada’s estimate of 3.83 MMT might be closer to the final production number.
With this in mind, our international customers know there’s less durum to go around and we’re already starting to see major customers like Turkey change their wheat blending rules to produce exportable pasta, from just 30% soft wheat allowed to 100%. That said, most analysts believe global durum demand will return to pre-COVID pandemic levels, but prices are sure to stay elevated with the smaller North American harvest, as well as some quality issues in Europe after late-season rains (namely poor falling numbers).
Overall, every week, we learn a little bit more about exactly how small this year’s Canadian wheat crop is, as well as that in the U.S., Russia, and even Kazakhstan. With fresh, more current data, models get updated, both in terms of what prices may do and how demand will adjust. In this week’s September WASDE report, it’s widely expected that the USDA will show bigger corn and soybean acres, which would be bearish unless the USDA also lowers yields. Regardless, the market already understands that corn and soybean supplies are historically tight, especially in major exporting countries. Therein, in next week’s column, I’ll dig into some of the implications of the corn market in the feed wheat market but one main thing to understand is that these lower inventories will help keep the price floor elevated for almost all substitutable crops (i.e., feed wheat or feed barley).