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Prairie crops had a bit of everything in 2015

Drought in the western Prairies had a lot of people concerned about production last season, but the latest information suggests the crop was bigger and better quality than expected

You can see it in the numbers — the StatsCan canola numbers that is.

In August the agency predicted 2015 canola production at 13.3 million tonnes. By October that number had risen to 14.3 million tonnes and one industry watcher says it could be headed even higher. David Drozd of market advisory Ag-Chieve told Country Guide there’s talk in the trade the number could approach or even top 15 million tonnes in the next report — something that probably won’t bode well for prices through this season.

“We’re getting into a production number more satisfactory to the crush and export markets,” Drozd said during a conversation that also included Ag-Chieve’s special crops specialist Frank Letkeman and grain marketing advisory services manager Ed Baldwin. “This makes them a lot less willing to chase or push this market.”

Tale of two crops

Overall crop production turned out relatively well, in contrast to expectations when drought hit the western Prairies early in the season. In October, StatsCan estimated the total Prairie grain and oilseed crop at 56.3 million tonnes, seven per cent down from last year and 23 per cent down from the bin buster in 2013, but just three per cent off the previous five-year average.

While the dry weather cut yield, it also contributed to a relatively high-quality wheat crop — on average. Rain in September spoiled the harvest party for some.

“The first and largest part of the harvest had excellent quality, the last third didn’t have quite as good quality,” said Bruce Burnett, weather and crop specialist with G3, formerly CWB.

Speaking to the Cereals North America conference in early November, Burnett said the portion of CWRS in the top two grades was estimated at 63 per cent, just two percentage points off the recent average and well above 50 per cent last year. For durum 55 per cent was in the top two grades, just one point off the five-year average and a substantial improvement over 24 per cent last year. Durum protein content of 14 per cent is well above the average of 12.6.

(click for larger view)

(click for larger view)

Combined with similar results in the U.S., that’s led to a sharp drop in protein premiums.

“If we look at the Minneapolis protein premiums for 13.5 to 15 per cent, last year at this time they were around $3.50 a bushel, and right now they’re about 65 cents,” Burnett said in an earlier interview in mid-October.

Ag-Chieve’s Baldwin said wheat producers are in an “upside-down land” this season, with near-negligible protein premiums and the possibility of some demand for lower-protein wheat for blending. This won’t directly translate into more dollars, but combined with the overall high quality of the crop, a grower might readily catch a break on grade from a local buyer if the math works out to a win-win situation.

“I hesitate to call it a ‘premium’ for lower protein, but this opportunity will exist,” he said.

High-pro malt barley

While higher protein might be welcome news for wheat and durum, it’s causing headaches for maltsters. Higher protein reduces malt extract and can cause some quality problems in beer.

“We’re seeing protein levels between 13 and 14 per cent, which is way too high,” said Daryl Beswitherick of the Canadian Grain Commission. “Typically they want 12.5 per cent or lower.”

Burnett said there are some other quality issues that popped up later in the season with the wetter weather, such as “chitting” on the kernels, which is a very early stage of germination that stops short of actually sprouting, but is a concern to maltsters, who depend on high germination levels. That means later-harvested barley is likely to struggle to make malt, he said.

“I think it’s mostly going to be feed barley,” he said.

Ag-Chieve’s Letkeman echoed these concerns, saying maltsters have clearly been re-evaluating what’s going to be considered malt this year.

Letkeman added that growers won’t likely see strong values for feed barley. Other feed grains like corn are lower in value right now and some later-harvested wheat is hitting the feed category as well, further weighing on price.

“In general terms export demand seems to be a bit lower, as we’ve seen increased feed grain production globally,” Letkeman said. “Domestically the market seems well supplied, which makes it unlikely we’ll see any bid-up of prices.”

Bright spot for pulses

There is a better marketing outlook for other crops. Some of the pulse crops, in particular red lentils, have seen an international production shortfall and Canada, having the lion’s share of exportable global lentil production, finds itself in an enviable position this year.

“In the pulse sector, we see red lentils basically at record highs,” Drozd said.

Lentils, a crop that developed naturally in hot and arid conditions, weathered the western drought reasonably well, as did most of the other pulses.

Letkeman said the pulse price hierarchy this year basically boils down to red lentils on top, green lentils in second, then yellow peas, with green peas trailing the pack by a measurable margin. The first three, he explained, are in relatively tight supply.

“Green peas are the weak ones,” he said. “All the others are in tight supply, which will keep prices well supported.”

Baldwin noted that this comes on the heels of a decent year for pulse growers in 2014 as well, something he says producers have noted and there’s a general expectation that 2016 will see increased pulse acres — something that an astute farm manager might want to take into account now when making a marketing plan.

“You can find profitable prices for next year’s crop today,” he said. “It might be something you want to consider.”

Plan needed

While marketing advisers like Drozd would love to have better news, he said the hard truth is that growers are in for some more challenging times. There’s little sign the well-supplied markets for major crops are looking at an imminent flip to tighter supplies, and if anything the risk is in the opposite direction.

“Soybean ending stocks are more than double a year ago, and could go to a global record high this year,” he said. “If you’re waiting for the South American crop to bring higher prices, you could be disappointed. If they have a good crop, they’re just going to add to the stocks.”

It’s not all doom and gloom, however, with profitable pricing opportunities occurring regularly, Baldwin noted.

“There are frequently profitable prices on the table,” he said.

The biggest risk for growers this season is going to be holding on hoping for better times that are unlikely to come, Drozd said, noting that the secular trendline was largely sideways but trending down over time.

“Typically in a bear market you’ll see lower lows and lower highs, and that’s the pattern that we’ve been seeing,” he said.

It means growers need to contain production costs, know their cost of production and what a profitable price looks like, and have a plan that they’ve got the discipline to execute.

“They’re really going to have to sharpen their pencils and be disciplined,” Drozd said. “I think many have realized that the market has changed and they’re making their plans based on this.”

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