- The Canadian crop has continued to decline in recent months.
- High temperatures and low rainfall have contributed to the worst conditions in recent years.
- The focus has been mainly on canola, but other commodities will also be impacted (see here), including pulses.
- Crop conditions have drastically fallen in recent months. As an example, lentils have dropped from 73% good/excellent in Mid-June to only 18% good/excellent in late July.
- The misfortune of the Canadian farmers will benefit Australian farmers, especially in the commodities which have little other competition (pulses/canola).
In recent months I have written a lot about the deteriorating crop in Canada. We initially focused on canola, but it has a huge impact on other crops, especially pulses (see here).
In Australia, we are unfortunately used to drought and know how to plan for it. In Canada, they have had a really good run of seasons, and this one has come as a bit of a shock for them.
Saskatchewan is the most important province in terms of grain production in Canada. This region, among others, has suffered through a lack of moisture this season and high temperatures. The max temperatures have been significantly higher than usual.
I’m a market analyst, not an agronomist. However, I am still pretty confident that high temperatures and lack of rainfall are a poor omen for a crop.
The two charts below show the max temperature and moisture for this year against the normal range. More on the condition after these charts.
The Saskatchewan government provide insights into the crop condition around the province. A series of reporters around the region provide their estimate of how much of the crop is rated as a percentage of poor through to excellent. In this analysis, we have focused on the provincial region as it is representative of the growing region.
We tend to focus on the combined good/excellent condition. The first chart below shows how quickly the crop has deteriorated. A poor crop gets poorer.
The change has been dramatic between Mid June and the end of July.:
- Winter wheat 47% to 24% good/excellent
- Spring wheat 77% to 16% good/excellent
- Barley 77% to 12% good/excellent
- Canola 64% to 14% good/excellent
- Lentil 73% to 18% good/excellent
- Chickpeas 77% to 9% good/excellent
So this year is bad, but how does it compare to the past?.
The chart below shows the crop condition for this year versus the average crop condition for the same period.
Quite clear that the region is well below the average since 2012 across all commodities. Other than Chickpeas, on average, since 2012, the crop has been >50% good/excellent. So they have had it quite good, in comparison to Australia.
Canada is a major producer and exporter of crops. Therefore a drop in production will have beneficial impacts upon pricing. This is especially the case in some commodities in which they have a large market share, and we actively compete.
Two of the more important markets are canola and pulses.
Canada is the worlds largest canola exporter, at >60% of global trade, and Australia in second place at 17%. The deterioration in Canada has resulted in higher futures levels, which has helped our pricing levels.
Lentil pricing has also improved, which is largely a result of the removal of the Indian import tariff (see here). The loss of a large volume of production in Canada could be the impetus for the next jump in lentils.
All in all, it is sad to see farmers in Canada struggling through a drought. That being said, it does provide some potential pricing benefits for Australian producers.
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