Canadian spring wheat sowings to rise by 12%

Statistics Canada seeded acre estimates release last Wednesday, based on producer surveys conducted between March 1 and March 31, were largely as expected. Given the results of this survey, continued dry conditions across the southern Prairies, along with market access issues, have led producers to reduce risk. They are shifting acres from crops such as canola, soybeans, lentils and durum into cereals such as spring wheat, oats, barley and corn along with dry peas and flax.

Canada's spring wheat area is forecast to rise by 12% to 19.387 million acres, up 16.1% from the five-year average and the largest spring wheat area seen since 2001. This represents a 2.1 million acre increase from 2018, the largest year-over-year change in seven years, with Saskatchewan representing close to 50% of this increase. Between 1976 and 1997, area seeded to spring wheat remained consistently above 20 million acres, ranging as high as 31 million acres in 1992. The most recent low is 15.1 million estimated for 2007.

Given Agriculture and Agri-Food Canada's current 2019-20 supply and demand forecasts, Canada's wheat production (excluding durum) will lead to increased supplies. There is also a potential surge in ending stocks from the tight levels forecast for the current crop year. This could be viewed as bearish for wheat overall. Mid-day trade shows continued pressure on MGEX spring wheat futures.

As widely expected, durum acres are forecast to fall by 18.8% to 5.021 million acres, the smallest area planted in five years and 10.5% below the five-year average. This drop in acres represents the largest drop in acres seen in nine years. This estimate came in closer to the lower-end of pre-report estimates, while this area is only slightly higher than AAFC's current estimate. Given historical average yields, this acreage could still lead to increasing stocks in 2019-20 without a surge in export demand and could be viewed as bearish for durum prices, with 2018-19 ending stocks forecast to increase by 40% to 2 million metric tons.

The area dedicated to both oats and barley is also viewed to benefit from the shift in the seeded acre forecast for 2019. Barley acres are forecast to grow by 10.2% to 7.155 million acres, the largest area in six years and 13.3% higher than the five-year average. Despite a tighter carryout forecast for 2018-19, supplies are set to grow in the crop year ahead while increased feed consumption and steady exports could keep stocks close to unchanged in the year ahead and this report could be viewed as neutral for barley.

Oat acres are forecast at 3.291 million acres, up 7.8% from the previous crop year and would be the largest acreage planted in three years at a level that is 5.8% higher than the five-year average. Like barley, tighter ending stocks in 2018-19 could largely offset increased production and stocks could remain tight in the crop year ahead, leaving this report viewed as neutral for oats.

Canada's corn for grain acreage is forecast to grow by 4.6% in 2019 to 3.795 million acres, close to the upper-end of a range shown in a media pre-report estimate. This is a record area for the country driven by an increase in planted area expected in Ontario and Quebec while Manitoba acreage is forecast to fall for the first time in four years to 413,700 acres from the record 421,000 acres planted in 2018. The Ontario acreage is forecast to grow to a record 2.226 million acres. When this total acreage is inserted into current AAFC supply and demand tables for 2019-20, we see a fall in 2018-19 ending stocks and an expected drop in imports are forecast to lead to lower supplies for the crop year ahead, while a case is made for ending stocks to remain close to unchanged. This leaves the report viewed as neutral overall.

As expected, canola acres are forecast to fall in 2019 because of the uncertainty over Canada's exports to China, which account for roughly 40% of total exports. Canola acres are forecast to fall by 6.6%, or roughly 1.5 million acres from the area seeded in 2018, to 21.314 million acres. This area represents the second annual drop in area to the lowest level in three years and 1.6% below the five-year average. This forecast is calling for a deeper cut than expected by AAFC in their most recent estimates, while one media survey pointed to acres falling to as low as 19.4 million acres, or 15% from the 2018 area.

When this acreage is plugged into the most recent forecast for 2019, crop year supplies may fall only marginally, given swelling stocks forecast for 2018-19, while it will require an increase in exports in the year ahead to prevent an increase in ending stocks in 2019-20. This results in an ongoing bearish view of this market. Over the past five years, the March intentions report has proven to be conservative when compared to the final seeded area for canola, with the final area averaging 5.9% higher. The canola market posted modest gains in Wednesday's session, with support also spilling in from a weaker Canadian dollar trade.

Soybean acres in Canada are forecast to fall for the second straight year to 5.646 million acres, down 10.7% and the lowest seeded area in three years. All major growing areas of the country are forecast to reduce acres, including Quebec, Ontario, Manitoba, Saskatchewan and Alberta. The largest shifts are seen in Manitoba of 318,900 acres, the lowest planted area in four years, and Saskatchewan, where acres are forecast to fall by 167,500 acres to the smallest area in three years. This may be viewed as a surprise in today's report, with a Reuters report pointing to pre-report estimates ranging from 6 million to 7.3 million acres, while averaging 6.4 million.

When current AAFC forecasts for 2019-20 are considered, total crop year supplies could fall by 1.1 mmt given historical yields in 2019, which would lead to continued tight stocks and a bullish situation for Canadian soybeans.

Lentil acres are forecast to fall by 9.6% in 2019 to 3.405 million acres, the third consecutive annual decline and to the lowest area in five years, while 18.6% below the previous five-year average. Trade with India remains problematic with ending stocks forecast to remain stubbornly high in 2018-19. This area is near the lower-end of the range of pre-report estimates released by Reuters, while below the average pre-report estimate of 3.6 million acres. Given AAFC's current forecasts for 2019-20, this acreage would lead to lower supplies available over the upcoming crop year while ending stocks should be reduced, supportive overall for prices.

Dry pea acres are forecast to grow by 11.6% to 4.036 million acres, while 2% higher than the five-year average and higher than expected in pre-report estimates. Given current AAFC projections, 2019-20 supplies could increase over the previous year while ending stocks should still remain close to the current year's levels with only a modest growth in exports.