Canola 2019 Revisions: The Worst Could Be Over
While discussed previously, FBN thought it was worthwhile to remind farmers that Statistics Canada historically revises canola production estimates—and that revision is usually to the upside.
But we dug a bit deeper into those revisions. We also dove a bit deeper into what futures do in the coming months. There is no statistically significant relationship between canola production revisions and changes in futures prices in the coming months. But, generally, futures weaken on average from now until September.
Production Revisions: Some good news
Statistics Canada could add to the 2019 canola crop in its Production of Principal Field Crops report, which likely will be released in late August (based on July conditions). But there is some good news.
First, in the past four years, only one year is a situation where a lot of tonnage was added from the November report to the following July report. So we may not see a large revision to the upside.
Secondly, in the past three years, the bulk of the upside revision occurred from the July to the November reports with the 2017/18 and 2018/19 crop years not having notable revisions after the November report.
While Statistics Canada does historically revise its canola production to the upside, recent history suggests the largest part of the revision could be behind us. This chart shows the initial production forecast, the second production estimate released, and then the most recent estimate available.
Do production revisions impact futures?
FBN was unsuccessful in finding a meaningful impact between old-crop production revisions and nearby futures prices. What we can confirm is that the variance between the average change in prices from June through September is lower in recent years versus prior years. We simply are not seeing as wide of changes in futures prices (on average) since 2015 to now versus prior to when comparing average prices in June versus September, and then comparing July to September and so on.
FBN's take on what this means for the farmer
While generally the market knows Statistics Canada makes revisions to the upside on production, the largest revision for 2019 could be behind us. This will help keep stocks moving in the right direction. FBN leans slightly bullish for canola right now given the current balance sheet situation.
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