Canada Markets

It's steady-as-she-goes in the new-crop canola market this week, despite Thursday's Statistics Canada report which estimated that producers would seed 900,000 less acres to canola this spring.

Pre-report estimates for 2015 canola acres indicated a split in the trade, with expectations that canola acres could move a million acres either up or down from last year's estimate of 20.3 million acres. Those leaning towards lower acres may be right, given Thursday's Statistics Canada's March Intentions report that suggested producers will seed 19.416 ma this spring, down 4.5% from last year.

A combination of this estimated acreage along with the five-year average yield with 99% harvested would suggest production of roughly 15 million metric tons. When you plug this number into current Agriculture and Agri-Food Canada supply and demand tables, you see production falling 1 mmt from its current new-crop production estimate. Leaving all else unchanged, with 8.4 mmt of exports and 7.6 mmt of crush, ending stocks would be revised to 400,000 metric tons, perhaps the tightest ending stocks recorded.

What is interesting here is the lack of response in new-crop futures since the report. Not shown on the attached chart is the daily activity, which shows November canola ending unchanged on Thursday after the report, while at the lower end of the day's $5.40/mt trading range. Over the course of the week, the daily closes were found in a narrow trading range; from a high of $447.20/mt on Monday to a low of $446/mt, which was the close observed on Tuesday, Wednesday and Thursday. Friday's close was $.30/mt higher at $446.30/mt.

Over the course of the week, new crop spreads weakened, normally viewed as a sign of a less bullish or increasingly bearish response on the part of the commercial trade. The Nov/Jan weakened $.20/mt to a carry of $1.40/mt (January over the November) while the Jan/March spread widened $1.20/mt to a carry of $.20/mt. Despite the small carry in the market, these numbers could be viewed as being bullish given that the spreads are far below the actual carrying costs required to hold seed over this time period.

What is interesting is the lack of bullish response since the release of the report. Perhaps the report is not believed? Another potential explanation is that old-crop supplies are above expectations. While AAFC currently indicates a 1.45 mmt canola carryout at the end of July, an April 7 U.S. attache report has pegged Canada's canola carryout at 2.018 mmt while and April 9 USDA Oilseeds: World Markets and Trade report has pegged Canada's carryout at 1.879 mmt.

Ongoing DTN studies have shown that while Canada's current pace of crush may be on track to achieve the 7.2 mmt crush target set by AAFC, current exports through licensed channels are currently 500,000 behind the cumulative pace needed to reach the current 9.2 mmt export target. As of the end of February, an additional 187,000 mt of unlicensed exports will help narrow the gap.

Another indication that there could be more seed available than estimated is seen in producer delivery patterns. Week 37 deliveries remained strong at 302,100 mt, while year-to-date deliveries into licensed channels are 761,100 mt ahead of year-ago volumes. August-through-March deliveries reported by Statistics Canada are 11.234 mmt, 14% above the five-year average. Spot basis levels are viewed as being wide while the seed continues to be delivered.

While the industry may be facing a lower seeded acreage this spring, 2014/15 carryout may be the cushion needed to carry the industry through the next year and could be the reason for the lack of response in this week's new-crop trade.

The next Statistics Canada report is the May 6 Stocks of Principal Field Crops which will estimate grain stocks as of March 31.

Cliff Jamieson can be reached at cliff.jamieson@dtn.com

Follow Cliff Jamieson on Twitter @CliffJamieson

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