Market Insider

StatsCan Continues to Lower Harvest Forecast

Grain markets rebounded last week as South American weather concerns are mounting and Statistics Canada provided an updated production estimate that shows Canada’s Harvest 2021 is one of the smallest in recent memory. Just a few weeks following their last estimate but based on satellite data and inclusive of August weather, StatsCan pointed out that crops across Western Canada reached “peak health well ahead of normal, (and) in some instances, up to four weeks earlier (than normal), before decreasing rapidly, as a lack of moisture and high temperatures took a toll on plant health.” Ultimately, Canada’s total wheat harvest of 21.7 MMT would be the smallest since 2007’s haul of 20.1 MMT and even 2002’s drought year of 20.6 MMT, but keep in mind that this year’s average yields (including durum) of 35.2 bu/ac more closely resemble 2007 (34.7 bu/ac) than 2002 (27.2 bu/ac).

When compared to their last estimate that was released just a few weeks prior, StatsCan’s satellite-based forecast for Canada’s Harvest 2021 is clearly much smaller (see the comparison in the far-right column in the table below). Production estimates for all cereals dropped significantly, with Saskatchewan and Manitoba accounting for most downgrades in barley, oats, and wheat – of note, StatsCan dropped their average Manitoba oats yields by 22.5 bu/ac from their previous projection! On the flipside, corn production was raised considerably, but that will likely have no impact on the feed grain market that I talked about last week as the bigger crop in Eastern Canada will likely just mean less corn imports will be needed by ethanol plants out there.

The biggest production downgrade from StatsCan was for canola though, as StatsCan lowered their harvest number by nearly 2 MMT to now sit at 12.78 MMT. Again, Saskatchewan and Manitoba accounted for most of the canola crop downgrade – 1.8 MMT to be precise, with Saskatchewan owning 1.6 MMT of the drop. Ultimately, this is the smallest Canadian canola crop since 2010 and will put significant pressure on international and domestic buyers to ration demand and substitute into other vegetable oils (i.e. soybeans or palm oil). Assuming that happens and the inventory pipeline isn’t run completely dry, canola prices could start to feel a little top-heavy a month or two from now, especially with the way the Australian harvest is shaping up. Accordingly, something to keep an eye on is 2022 new crop canola future values, which topped $700 CAD/MT for just the 2nd time in its contract history last week.

Specific to wheat, Statistics Canada dropped the national production number by more than 1.2 MMT from their last forecast, and again, most of it was attributed to Manitoba and Saskatchewan. For the former, harvested Manitoba wheat acres dropped by more than 17% (the biggest year-over-year area drop in the country), and combined with average yields dropping by 21%, total wheat production was pegged at just over 3.4 MMT. This is nearly 600,000 MT below the August estimate and a 35% drop from the Manitoba wheat harvest last year. In Saskatchewan, average wheat yields (including durum) are down by nearly 40% year-over-year to just 28 bu/ac, and combined with harvested area falling by 8% from last year, just 9 MMT is expected to come off from the Wheat Province, a 44% or nearly 7 MMT decline from last year!

In Alberta, the total wheat harvest is down nearly 5 MMT, or 45% to just over 6.1 MMT, with a spring wheat harvest of 4.14 MMT (down 43% YoY) and durum output of just 601,000 MT (down 55% YoY). A total Canadian durum harvest of 3.55 MMT is nearly half a million tonnes less than what StatsCan estimated 2 weeks ago. In next week’s column, I’ll dig into Agriculture Canada’s updated supply and demand tables coming out this week, as they’ll be using these updated (yet lower) production numbers. Quite literally though, we should all expect export demand to drop as Canadian grain, oilseed, and pulse crop prices become largely uncompetitive compared to others in the global market.

That said, there are some crops like oats, peas, lentils, and mustard where the global competition is much smaller than that of say wheat, barley, or even canola/rapeseed, and so prices may stay elevated for longer in these markets. This is largely because origin or alternative crop substitution effects are harder to come by; yes, international buyers can potentially purchase from other markets but quality and logistical concerns this year are already sky-high, which means they may just pay up for the product and pass the additional cost onto consumers.

To growth,

Brennan Turner