2016 seeded acres for Canola continues to be one of my highest priorities. You will recall that since early November I have been holding off on sales based on my thesis that strong Demand will bring the 2015/16 Ending Stocks down into a neutral range even with increased yields. I had thought that increased yields all the way to 38bpa that we saw from StatsCan in Dec would have caused more downward pressure. I think my Demand outlook was adopted by some (reported exports and crush supported my position), and Nov/Dec/Jan weakness in Loonie also helped insulate us from losses. That post StatsCan weakness was part of the recipe for future strength because I felt that weakness would discourage Canola acres in 2016 and generate a “buy acres” spike, if not then a weather risk spike is in play. Sliding sideways makes the decision for farmers more difficult with no clear price signal of what to do.
When I compiled my seeded acre projections for 2016 (before having the benefit of seeing other people’s projections) I left my acres almost unchanged from last year. I have, and do feel a little uneasy with that projection. I (you) have a lot riding on the direction of the Canola Market. I have only recommended sales of 20% of 2015 production, with 60% on Basis, shipped in the fall but rolled to July Futures, and the last 20% still fully at risk. The sales made are very close to current offers. Basis rolled contracts have worked out nicely. We will be able to stay in the market all the way to the close of July at less than zero cost! The question all along has been can we break out of this sideways funk? The answer to that question is in the 2016 seeded acres.
Since putting my projections out I have seen a few other projections from Government and private agencies. The low I have seen is 19.397 million acres, the high 20.86 million acres. My number was (is) 20.335 million acres, considering recent guesses my thesis of a need to either buy acres or build a risk premium still stands, but barely. The upside acre number that would really scare me is 21.5 million. I cannot emphasize enough how important this is. 19.397 million acres brings lots of Bullish potential, 21.5 million could be very Bearish. My starting point to project seeded acres is 2015 returns and projected 2016 returns vs other crops. I skew that input regionally and consider crop mixes by soil zone. I consider what fundamentals of Supply and Demand is telling farmers to do. To ground my forecast I not only monitor other analysts and agencies, but I can also look at my current client base intentions and this time I drew on past contacts covering all areas of the SK. I have nothing against MB or AB, I just believe that relative decisions there will reflect what happens here. Combined total of all farms I have both 2015 and 2016 acres for, I show Canola seeded acres down 3.35%. I did an unscientific email survey of past clients, contacts, and friends. Farms who responded would total close to 200,000 acres spread literally to all 4 corners of grain land in SK. From that group of farms I calculate an increase of 2.85%. To summarize, nothing I have seen compels me to change my projections today. But I won’t take my eye off this one until we get results from StatsCan survey conducted in early March, reported in early April.
|2016 Canola||Current Low Estimate||DLN Projection||Current High Estimate|
|Seeded Acres ‘000||19397.0||20355.0||20860.0|
|Harvested Acres ‘000||19201.6||20150.0||20649.0|
|Production (‘000 MT)||15242.1||15995.0||16391.1|
|Total beginning stocks (‘000 MT)||2151.7||2151.7||2151.7|
|Imports (‘000 MT)||94.2||94.2||94.2|
|Total supplies (‘000 MT)||17488.0||18240.9||18637.0|
|Total domestic use (‘000 MT)||7750.0||7750.0||7750.0|
|Total exports (‘000 MT)||8625.0||8625.0||8625.0|
|Total demand (‘000 MT)||16375.0||16375.0||16375.0|
|Total ending stocks (‘000 MT)||1113.0||1865.9||2262.0|
The Ending Stocks level I watch for is 2 million mt. Over is comfortable, below tight. Of course how far either side we go will determine a Bearish or Bullish price response. I have my 2015/16 Ending Stocks at a Neutral 2.1 million mt, which is why I believe we are seeing this sideways pattern. Fundamentals are not signalling any price change which leaves it up to Specs and Technicians to move market back and forth.