Basis levels across Western Canada continue to tighten with the Canadian Dollar recently appreciating back above 71 cents USD. Granted, we’ve seen wheat prices improve a bit on the futures boards thanks to concerns over winter weather, Russian government intervention, and spring acres being lower, it’s not the massive catalyst needed to really push managed money out of their massive short position. From a cash price perspective, the improved value of the Canadian Loonie is putting a serious damper on Western Canada values. Nonetheless, the news of the acreage estimates and a little bit of a shor-covering has wheat ending the 1st month of 2016 up almost 2% on the board. Rounding out the complex, corn continued to rebound from its tough start to the year, up over 3.5% for the month while soybeans gained 2%. Conversely, canola saw its price in Winnipeg get dragged down almost 2%, but oats was the big loser, down almost 8%.
We continue to see some solid demand numbers for canola as the lower Canadian Loonie (-1.4% in January) has helped exports but domestic demand numbers also continue to impress with almost 750,000 MT crushed in December 2016, up 16% from a year ago and 7.7% from November 2015. With the strong pace, is there more upside left? Possibly, which is probably why A.A.F.C. recently forecasted 2016 Canadian canola acres at almost 21 million acres, the 2nd largest area ever!
This would equate to an increase of about 3.6% from 2015 and comes as a benefit of lower spring wheat acres, which are seen falling almost 2% year-over-year to under 17 million acres (the lowest in the last 5 years). Also winning over area was durum, whose acres are ballooning to an 8-year high of almost 6 million acres (suggests more low $8s and $7s per bushel are on the horizon…). Not a surprise to anyone but more pulses are also going in, with lentil acreage up 13% to 4.45 million acres and peas up to a record 4.2 million acres. From a relative standpoint of the 5-year average, this is a 50% upgrade for lentils and a 28% increase for peas. Soybean acres across Canada are also seen increasing by almost 4% year-over-year to 5.62 million acres whereas less corn is getting less attraction with acreage down 3.7% to 3.15 million acres.
Across the border, Informa Economics is estimating that American farmers will plant a record amount of soybeans with 85.23 million acres getting seeded. This is still well above the next closest estimate of 84.2 million acres from Societe Generale, the previous record set 2 years ago of 83.3 million acres, and the U.S.D.A.’s current estimate of 82 million acres! On the corn side of things, Informa is calling for 88.9 million acres in 2016, similar to the las t year’s number of 88 million (but still a far cry from the 1932 likely-will-never-be-broken-record of 113 million acres!). The question for me now is, will decent crops coming out South America trigger some alerts (slash changes) to the North American numbers? There’s still a few weeks left to go before those drills get pulled out of the snow!
To growth, Brennan Turner, President & CEO | FarmLead.com