Canadian farmers are keeping their bins of newly harvested wheat locked as they cautiously ponder their first sales outside a marketing monopoly since the Second World War -- while strong demand has pried much of this year's disappointing canola crop off farms.
Farmers have only sold an estimated 20 to 35 per cent of the 2012-13 harvest of 26.7 million tonnes for autumn or later delivery, said Gord Flaten, vice-president of grain procurement for CWB, the former monopoly marketer known as the Canadian Wheat Board.
"I think there's a bit of uncertainty, and I think there is a bullish market view as well, which is a big factor," Flaten said. "If you believe prices are going to go higher, you're going to hold off on committing."
A Canadian grain handling source estimated farmer wheat commitments between 30 and 40 per cent of the total crop.
For the first time in seven decades, western Canadian farmers can sell their wheat and barley for export or human consumption to any buyer, not just through the Wheat Board.
Meanwhile, Minneapolis spring wheat futures are trading nearly one quarter above their springtime levels, helped by weather-related problems affecting crops in the Black Sea region and U.S. winter wheat growing areas.
While wheat deliveries by farmers to country elevators are up nine per cent to about 5.2 million tonnes as of Nov. 11 according to the Canadian Grain Commission. Some of those were leftover sales from last year's crop, Flaten said. Higher deliveries also reflect the second-biggest wheat crop since 1999, and favourable autumn weather.
Wheat, with its many grades and variables such as protein content, is considered by some to be a complex crop for farmers to market. If farmers continue to delay sales commitments, Flaten said a backlog may build up for the second half of the August-to-July crop year, potentially overwhelming grain handlers and pressuring prices.
"Because of the new marketing system, farmers didn't sell a whole lot (of wheat) right off the combine," said Brett Halstead, who farms near Nokomis, Sask. and focused on delivering canola earlier this autumn. "I think what's happening now is more wheat's moving, because less was moving earlier in the harvest."
Commercial stockpiles of wheat excluding durum -- a category that mainly includes spring wheat used for baking -- are down more than eight per cent according to the commission, as the favourable autumn weather allowed for easy movement of wheat through to the end user, Flaten said.
Canola crop smaller
Canola's supply story is different. Canola growers harvested a disappointing 13.4 million-tonne crop this year, pushing prices higher.
Those premiums have allowed Canadian crushers to claw more canola out of farmers' bins, with overall farmer deliveries up three per cent on the year -- despite the smaller harvest and tight carry-over supplies from last year. Crushers are on a record-brisk processing pace.
"You had a lot of commitments early from growers this fall, both for the exporters and the crushers," said a Canadian crushing source. "A lot of that stuff was done back in the spring, early summer before the market and the growers really started to see the crop deteriorate in July and August."
Canadian canola processing capacity has expanded dramatically in recent years, and further expansion is being planned by Cargill, Bunge and Archer Daniels Midland.
"Crushers have to be in here (buying) every day -- they're just that big," said an ICE Futures Canada canola trader.
With strong demand, canola is moving quickly through processing and export channels, slashing commercial canola stocks 28 per cent year over year to less than one million tonnes as of Nov. 11, according to the Grain Commission.
But challenging conditions may slow down both the crushing and export pace starting in January, the crushing source said.
Crush margins have weakened by almost half compared to last year, due in part to high seed costs, and lower than usual oil content has forced crushers to process more seed to squeeze out the same volumes of oil.
-- Rod Nickel writes for Reuters from Winnipeg.