Perrin: Low stocks mean small margin
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- Published on Thursday, May 9, 2013
By: Steven Perrin
myWestman.ca
Farmers, analysts and traders who keep a close eye on the markets have spent much of the last few weeks looking ahead. A crucial United States Department of Agriculture (USDA) seeding intentions report in late March was followed by a StatsCan version in April.
Together they gave us a better understanding of — or at least, fresher information for continued debate about — what North American farmers will plant this year.
Last week, however, StatsCan released a second report. This one assesses stocks of principal Canadian field crops as of the end of March, and it gives us perhaps one last chance to look back before farmers get down to a flurry of planting. The report's findings are striking, if not surprising.
The specific numbers are telling of the challenging year that 2012 was for grain and oilseed producers around the world. Last year at this time, StatsCan released its report on stocks heading into the 2012 season and those were considered tight.
Yet this year's report reveals numbers that are significantly lower, nearly across the board, than last year. Total wheat stocks are down eight per cent. Canola and soybeans are down a whopping 25 per cent each, oats are down 30. Comparing canola stocks now to two years ago, we've seen a 42 per cent drop.
That stocks are very tight has been common knowledge for months so a significant impact on markets is unlikely. But the report serves as an important reminder that 2013 needs to be free of major disruptions if we're to realize the better harvests and subsequent softening of prices many analysts are forecasting.
That forecast is based on the assumption that a consecutive year with the kind of worldwide weather challenges we saw last year is unlikely.
South America is on the tail end of a good harvest so the year has started out much improved over last, as far as stocks are concerned. In the northern hemisphere, the various production regions are experiencing similar challenges to North American farmers: a colder, delayed spring but nothing to be overly concerned about yet.
The next month is crucial. If farmers are able to plant what they intend, we could see the eventual replenishment to stocks that could push prices down post-harvest. But the StatsCan report reminds us that, because we're entering the season with stocks so low, the margin for error is slim. Current stocks just aren't high enough to cover for another weak harvest.
