By John DePutter & Dave Milne – September 24, 2019
The news:
“With the latest 2019 production and final 2018-19 ending stocks estimates now in, Canadian canola ending stocks for the current marketing year are poised to reach a new record high.”
Syngenta Market News, September 23, 2019
What it means:
A sign of things to come?
For those that missed it, Agriculture Canada forecast 2019-20 canola ending stocks at 4.5 million tonnes in updated supply-demand estimates released late last week. If accurate, that would be the highest canola ending stocks level ever, easily surpassing the 3.87 million tonnes that remained at the end of the just-concluded 2018-19 marketing year.
Of course, it’s still very early and lots could still happen to bring 2019-20 ending stocks down closer to the previous five-year average (2013-14 – 2017-18) of 2.302 million. But it just seems like this isn’t a problem that’s going to go away quickly or easily.
Weak exports dent demand
The main reason 2019-20 canola ending stocks are projected so high is the unusually large carryin from 2018-19. And the reason the 2018-19 carryin is so heavy is the fact China slowed its buying of Canadian canola dramatically in early 2019 in response to the Meng Wanzhou affair. With China no longer purchasing its usual quantities, total Canadian canola exports in 2018-19 fell to 9.38 million tonnes, down about 1.4 million tonnes or 13% from a year earlier. Those lost exports went straight to the bottom line of the 2018-19 supply-demand sheet, inflating ending stocks.
No one can presume to know what China’s buying will be like in 2019-20, but Agriculture Canada’s current export forecast of 9.2 million tonnes – even below the previous year – suggests it isn’t anticipating any great rebound, at least at this point. Meanwhile, the domestic crush is essentially already maxed out at around 9.3 million tonnes annually.
Supply remains heavy
Just as worrisome as the demand side is the situation on the supply side. It is interestinging to note that at 19.35 million tonnes, this year’s currently estimated canola production would represent the second straight year that output has declined compared to a year previous. Over those two years, however, canola ending stocks have increased by about 80%.
So, while Canadian producers have certainly cut back on canola production by reducing planted area, they are still reaping crops that are large enough to add to the growing stockpile. And remember that Mother Nature hasn’t really cooperated the past couple of years either, which has limited yields and production. Just imagine where ending stocks might be now if 2018 and 2019 had been banner production years.
Let’s all hope that China returns as a major canola buyer in 2019-20, or another big purchaser suddenly steps forward. Canadian farmers may reduce canola planted area again next spring, but it seems unlikely any production cut will be deep enough to get 2020-21 ending stocks back down to a more reasonable level.
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