Oct. 22 (Bloomberg) -- Canadian wheat and canola grower Mike Bast spent five years building silos to store 100,000 bushels on his 2,000-acre farm in La Salle, Manitoba. It wasn’t enough. He’s already dumping grain into his neighbor’s bins.
Harvests this year across the Prairie provinces of Canada, the world’s top canola producer and the second-largest exporter of wheat, will jump 14 percent to a record 80.8 million metric tons, the government said Oct. 16. The supply surge is eroding prices and testing the limits of domestic storage. Farmers are leaving crops in uncovered mounds amid a shortage of silage bags and a lack of space at grain elevators and export depots.
“I’ve never seen this much grain out in fields, in bags or in piles,” said Tyler Russell, the national grain-marketing manager for processor Cargill Inc.’s Canadian unit in Saskatoon, Saskatchewan. “We have a monster crop.” Most storage space will be “pretty much full” during harvest months, he said.
Bin-busting output in Canada is compounding record global supplies as planting expanded from Brazil to Ukraine to the U.S. Midwest after last year’s drought sent futures surging. Goldman Sachs Group Inc., Citigroup Inc. and Rabobank cut their price forecasts in the past month. Global food costs that reached a three-year low in September probably will drop 6 percent in 2014, the International Monetary Fund said on Oct. 8.
Wheat, Canada’s biggest crop, fell 10 percent this year to $6.975 a bushel on the Chicago Board of Trade, and canola in Winnipeg slid 15 percent to C$498.60 ($484.50) a ton. Grain and oilseed prices during the 12 months that began Aug. 1 will be as much as 30 percent lower on average than a year earlier, the government’s Agriculture & Agri-Food Canada said Oct. 16, after boosting its harvest forecasts by 5.7 percent from September.
The Standard & Poor’s GSCI Agriculture Index of eight commodities dropped 16 percent this year, including a 37 percent slump for corn, the biggest decline among 24 raw materials tracked by the S&P GSCI Spot Index, which is down 1.6 percent. The MSCI All-Country World Index of equities advanced 17 percent since the end of December. The Bloomberg U.S. Treasury Bond Index lost 2.2 percent.
Improved yields and expanded acreage will boost Canadian wheat output by 22 percent this year to a record 33.17 million tons, the government estimates. Canola production will jump 16 percent to an all-time high of 16.03 million, while barley expands 18 percent to 9.43 million, the most since 2009. Corn was forecast to match last year’s record of 13.1 million tons.
While capacity at grain elevators has increased 5.4 percent in the past decade to 11.6 million tons, that’s down from 14 million in 1990, when the country had four times as many elevators, Canadian Grain Commission data show. The government doesn’t track storage on the nation’s farms, where production of grain and oilseeds are up 38 percent since 2003.
Grain Bags Canada, the largest seller of plastic sheets used as a cheaper alternative to metal bins for keeping harvested crops dry, has been sold out for the past month. It’s the first time in its seven-year history that the Humboldt, Saskatchewan-based company had none to sell, including the popular 10-foot-by-300-foot (3-meter-by-91-meter) bag that can hold as many as 15,000 bushels, President Aaron Yeager said.
“We knew before harvest there was going to be a shortage of grain bags,” said Yeager, adding that he plans on ordering as much as 40 percent more next year so he doesn’t run out. “Every direction I look, I can see a bag or two in the distance, and they’re not all mine.”
Output in North America has rebounded after drought last year cut U.S. corn production by 13 percent and soybeans by 2.6 percent. Hail and adverse weather in 2012 reduced Canada’s canola crop by 5.1 percent, and wheat and barley yields fell.
While planting in western Canada was delayed this year because of excess rain and cool weather, crops progressed as the weather improved. Wheat yields will be a record 3.23 tons per hectare, up 13 percent from last year; barley yields will jump 27 percent; and canola fields will produce 2.07 tons per hectare, up 31 percent from 2012, government data show.
“No one anticipated the size of the crop that we’ve actually got,” which may take more than a year to market, said Brent Watchorn, executive vice-president of marketing for Winnipeg-based grain handler Richardson International.
Export demand may soak up some of the surplus and help limit price declines. Canada will ship 20.5 million tons of its wheat crop to foreign buyers in the current crop year, the most since 1995, according to the U.S. Department of Agriculture. Canola sales will jump 10 percent to 8 million tons, Agriculture & Agri-Food Canada said Oct. 16.
Canola futures probably will rise to C$505 by the end of March, fueled by increased export demand, said Terry Reilly, a senior commodity analyst for Futures International in Chicago. Exports of oilseeds including canola may gain 12 percent on demand from China, Japan and Mexico, said Ken Campbell, a vice president of North American Softseed Crushing for Decatur, Illinois-based processor Archer-Daniels-Midland Co.
Farmers with storage may be reluctant sellers, and grain buyers may be eager to restock inventories depleted by last year’s smaller crops, Richardson’s Watchorn said. Wheat reserves before this year’s harvest tumbled to a five-year low of 5.057 million tons, down 15 percent from a year earlier, and canola inventories fell 14 percent to 608,000 tons, Statistics Canada said Sept. 6.
A bumper crop in Canada will help global wheat output jump by 5.8 percent to 692.6 million tons, the most ever, in the 12 months that began July 1, the International Grains Council said on Sept. 26, boosting its forecast from a month earlier by 2 million tons. The council predicted corn production will rise 9.3 percent to a record 943.2 million tons.
The prospect of ample world supplies has kept hedge funds and other large speculators betting on a drop in wheat prices for the past nine months. Their net-short position on Sept. 27 was 35,000 futures and options contracts, while corn holdings were the most-bearish since the data began in 2006, at 126,345 contracts, according to the most-recent report from the Commodity Futures Trading Commission. Data was suspended this month because of a partial U.S. government shutdown.
Wheat futures in Chicago will drop to $6.35 in the fourth quarter as output grows in Argentina, Australia and the Black Sea region, Rabobank analysts including Luke Chandler said in an Oct. 2 report. On Sept. 30, Damien Courvalin, a Goldman analyst, forecast $6.50 in three months. Corn, after touching a record $8.49 a bushel last year, may drop below $4 within 12 months, Citigroup said on Oct. 3. The grain was at $4.4275 today.
Canola probably will average C$470 in the 12 months through July, said Neil Townsend, the head of market research for Winnipeg-based CWB, formerly the Canadian Wheat Board. Prices averaged C$600 a year earlier.
Global food costs tracked by the United Nations dropped for a fifth straight month in September, led by a 25 percent plunge in cereal prices, the agency said Oct. 3. The “favorable supply outlook” will mean lower prices next year, the IMF said Oct. 8.
Grain supplies in Canada also may wait longer than normal on farms or in storage because there isn’t enough shipping capacity by a rail industry that transports about 95 percent of the nation’s crops, said Wade Sobkowich, executive director of the Winnipeg-based Western Grain Elevator Association, which represents grain-handlers including Cargill and Glencore Xstrata Plc’s Viterra unit. Companies may need twice as many rail cars as normal to move all the grain this year, he said.
Most of the export-terminal capacity is sold out through November and some buyers are booking deliveries into April to make sure they’re not waiting for supply, Richardson’s Watchorn said. Three elevators that have exceeded their capacity are storing a total of 96,000 tons on the ground in the first week of October, according to the Canadian Grain Commission in Winnipeg.
Bast, the Manitoba farmer, said he spent C$150,000 this year to add 10,000 bushels of storage capacity, an 11 percent increase, including new silos and a grain dryer. That only gives him enough room to store about 60 percent of his crop, which means the rest will have to be sold at low prices or into someone else’s bins.
“If the terminals are plugged and can’t take more grain, then everything has to sit at a standstill,” Bast said. “Everything is full at the farm right now, and we’ve got some more that’s got to come off the field yet.”
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