Drought has expanded into much of the Canadian Prairies, and like in the US July precip looks to be below normal, and also massively below recent years. The graphic below displays average rainfall across Saskatchewan in July, and assumes the current two-week forecast, which is void of meaningful precip. At just 1.4”, this is some 40% below normal and 70% below July of 2016. Vegetation health as of this week is much, much worse than last year, and not surprisingly, AgResource has found a strong relationship between July weather and wheat & canola yields in Saskatchewan. Saskatchewan is by far the biggest crop producing province in Canada, and as such Canada’s total production is expected to drop rather substantially in coming crop reports. Stats Can’s first production report is due in late August.
Based mostly on dryness in Saskatchewan, ARC pegs Canadian wheat production at 25.5 MMTS, vs. the USDA’s 28.5. Enlarged carryover stocks (7.1 MMTs, vs. 5.2 a year ago) will add a partial buffer, but still exports are being capped at 19 MMTs or so, vs. the USDA’s projected 22. Assuming production of 25.2 MMTs and exports of just 18.9, end stocks will rest at a historically normal 5.5 MMTs. The larger issue in wheat is still how to solve North America’s collapse in hi-pro supplies, as both Canada and US cash markets are rising in tandem.
And we mention Canadian dryness will be more damaging to Canada’s canola balance sheet. Assuming a yield in Saskatchewan of 1.85 MT/HA, similar to drought years 2011 & 2014, Canada’s canola crop is pegged no better than 17.7 MMTs, down 3.3 MMTs (16%) from the USDA’s forecast. Exports will be capped at just 8.6 MMTs, vs. the USDA’s projected 11.2. Note that canola carryover stocks are a record low 327,000 MTs, and so there’s very little error for further yield loss. As such, we advise end users to secure soy/canola oil on any further break. Canola is a bull market.