You are here: Home Columns Crops Market Advisor Market Advisor: Wet Spring Creates Problems for Canadian Crops
 
Document Actions

Market Advisor: Wet Spring Creates Problems for Canadian Crops

Images
Frayne Olson - NDSU Crops Economist & Marketing Specialist Frayne Olson - NDSU Crops Economist & Marketing Specialist
Weather forecasts for the Canadian Prairie Provinces will be watched closely by market traders.

By Frayne Olson, Crops Marketing Economist

NDSU Extension Service

An excessively wet spring is creating significant problems for the Canadian Prairie Provinces of Alberta, Saskatchewan and Manitoba. The immediate issue is how many crop acres have been planted versus how many acres will go unplanted. The Canadian Wheat Board estimates that between 8.25 million and 12.5 million acres of Prairie cropland will not be planted this year. Most of the unplanted acres are in the province of Saskatchewan. In 2009, this region planted approximately 60.9 million crop acres.

This is important to North Dakota farmers because these three provinces account for approximately 88 percent of Canada’s oat acres, 94 percent of the barley, 97 percent of the flax, 98 percent of the spring wheat, 99 percent of the canola and all of the Canadian durum, dry pea and lentil acres.

On June 23, Statistics Canada released a survey-based estimate of 2010 planting intentions. The survey polled 25,500 farmers and was conducted between May 25 and June 3. Unfortunately, this survey does not reflect shifting crop acres or prevented-planted acres from the continued rains that occurred after the survey was conducted. As a result, both futures and cash market traders will struggle to estimate the magnitude and implications of the extremely wet conditions.

Prices for oats, flax, canola, dry peas, and lentils likely will be volatile throughout the growing season. However, prices for spring wheat, durum and malt barley may not be as sensitive to the changing estimates for Canadian production.

Planted acreage is only the first key unknown. Some of the acres that were planted will be drowned out or abandoned, which will reduce the final harvested acres. Crop reports indicate a wide range in crop conditions and development. Some areas have been severely damaged, while others are doing well. There is a concern that continued rain and wet soil conditions will increase the chances for disease problems. The growing-season weather always influences crop prices by creating uncertainty about yields. Prices also become more sensitive to weather conditions when the acres planted are low, carryover stocks are not generous or the crop is under stress.

Spring wheat prices already have responded to the Canadian planting problems. Lower world wheat production estimates by both private forecasters and the U.S. Department of Agriculture have helped prices within the entire wheat complex recover since the first week in June.

However, hard red spring wheat futures prices have increased more rapidly than hard red winter or soft red winter wheat futures prices. September Minneapolis Grain Exchange spring wheat prices are trading at an approximate 70 cents per bushel premium to Chicago Board of Trade (CBOT) soft red winter wheat and 40 cents per bushel premium to Kansas City Board of Trade (KBOT) hard red winter wheat. This compares with an approximate 25 cents per bushel premium to CBOT wheat and a 20 cent per bushel premium to KBOT wheat in early May.

Additional spring wheat price improvement is possible if the Canadian crop continues to decline or if the U.S. spring wheat crop encounters major production problems. However, very large 2009 spring wheat carryover stocks, aggressive international competition and price-sensitive wheat buyers will make significant price rallies hard to sustain. In other words, the window of opportunity for pricing spring wheat likely will open and close quickly.

Any additional price rallies should be used to aggressively price 2009 old-crop spring wheat inventories. Pricing 10 to 20 percent of your expected 2010 production on rallies should be considered a part of a price risk management strategy.

Cash durum prices in North Dakota have not responded to the planting problems in Canada. There seems to be two reasons for this. First, the core Canadian durum regions made significant planting progress before the rains became excessive, which suggests that there will be fewer prevented-planted acres. Second, the core durum regions did not receive as much rain, so soil moisture levels are not as extreme as those in the core spring wheat- and canola-producing regions.

Both the U.S. and Canada have comfortable carryover stocks of durum, which provides a buffer for minor reductions in 2010 production. It likely will take another significant weather event that cuts production to see any substantial improvement in durum prices.

Cash and futures canola prices have responded very quickly to the planting problems in Canada. Both have increased by approximately $2.50 per hundredweight since the first of June. Soybean prices also improved during this time period, but the increase has been proportionally much smaller. As a result, the relative price spread between canola and soybeans has widened dramatically.

Additional price increases are possible for canola if the Canadian crop continues to deteriorate, but price increases will be limited unless soybean prices also increase. Rising prices begin rationing demand by making close substitutes more attractive and by forcing end users to evaluate every purchase closely. If canola prices become too high relative to soybeans, sunflowers or other oil seed prices, domestic and international end users will begin switching away from canola oil and toward alternative vegetable oils, such as soybean or sunflower oil.

North Dakota malt barley prices have had very little response to the Canadian spring rain events, which may seem unusual given the large Canadian barley production. Part of the explanation is that only about 25 percent of Canadian barley production is used for malting, either processed domestically or exported. The vast majority of Canadian barley is used for feed. In addition, a significant portion of the barley-producing region is outside of the heaviest rainfall regions. And finally, there are significant 2009 malt barley carryover stocks available to fill shortfalls in production or quality.

Weather forecasts for the Canadian Prairie Provinces will be watched closely by market traders. There are several months of growing season remaining and good yields still are possible. Spending a few minutes every day to keep current on crop market conditions can pay big dividends.


NDSU Agriculture Communication

Source:Frayne Olson, (701) 231-7377, frayne.olson@ndsu.edu
Editor:Rich Mattern, (701) 231-6136, richard.mattern@ndsu.edu
ND State Fair
4-H State Fair Results
Columns
Dairy Focus: Dairy Focus: Will 2014 be a Dairy Industry Year to Remember?  (2014-04-08)  The new farm bill represents a large shift in U.S. dairy policy.  FULL STORY
Spotlight on Economics: UAVs: The Key for Precision Agriculture?  (2014-04-21)  UAVs will improve precision agriculture by collecting larger amounts of data in a shorter period of time.  FULL STORY
BeefTalk: BeefTalk: Grass Turnout Date is More Than a Desire  (2014-04-24)  In the production world, producing beef from grass depends on the development of grazing plans that allow plants to fully utilize their genetics that have evolved for centuries.  FULL STORY
Prairie Fare: Prairie Fare: Savor the Taste of Umami  (2014-04-24)  If you combine foods containing the umami compounds, the resulting flavor is more intense than the food’s flavor by itself.   FULL STORY
 
Use of Releases
The news media and others may use these news releases in their entirety. If the articles are edited, the sources and NDSU must be given credit.
 

Powered by Plone, the Open Source Content Management System