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Grain companies and production data

Like farmers, grain companies use government production forecasts 
to help determine where markets are going

Grain companies and marketing firms use a variety of sources of information to estimate crop production and yield as well as beginning and ending stocks and predicted seeded areas for the next crop year.

Getting the information

Depending on a company’s resources, it might have access to internally produced information as well as information that is publicly available. Internal information might include reports from field staff about local crop conditions, yields and local weather events. Some companies conduct their own surveys. This information is added to publicly available data like United States Department of Agriculture (USDA) and Statistics Canada (StatsCan) farm surveys, Canadian Grain Commission quality data and other sources.

“This is where it comes down to people like me gathering and analysing all this information to produce internal estimates of production, stocks and future acreages,” says Bruce Burnett, weather and crop specialist at CWB.

StatsCan’s reports on field crops are the most extensive survey of Canadian production, with 29,000 farms surveyed in their largest survey fielded in November. “People can and do argue about the StatsCan surveys,” says Burnett. “Some quibbling over the numbers no doubt happens, however, these are the numbers determined by the most comprehensive survey conducted and are globally accepted. They are the numbers the market responds to and are important in price discovery.” Any anecdotal evidence or commentary has no statistical merit, it’s merely conjecture or opinion and it is best to use it very cautiously.

The last StatsCan report was inordinately important because the USDA report did not get published as a result of the government furlough in October. It’s also one of the few global reports on production and it did confirm for the world that Canadian crop is, as was anticipated, a bumper crop.

“The data from StatsCan or USDA is needed for two main reasons,” explains Burnett. “They drive future price movements and they drive the process of selling the grain and exporting it, the logistics.” For Burnett at the CWB and for other organizations, the absolute precision of the numbers is not as important as the trends.

“You’ll never count every kernel,” says Burnett. The real reason for the process is to set up for the next year’s crop — this is the real value in the forecasting process from the standpoint of a grain company. “It may be that in an extremely tight stocks situation the absolute numbers are more important, but in a normal year or a year like this year where production of Canadian wheat was through the roof and U.S. corn had a reasonable growing season,” says Burnett, “from a marketing perspective we know that U.S. stocks will build up and there is enough corn to satisfy demand. The only outstanding question to be answered now is the size of that surplus.”

The market

In Burnett’s opinion the market pays an inordinate amount of attention to the early non-surveyed reports from USDA, reports that are almost purely analytical and have no measured estimates from the field incorporated. That is why the August USDA report is always eagerly anticipated, being the first in the series that actually has some of that crops year’s field data incorporated into the picture.

Farmers see market movements or swings that occur when reports are released and Burnett recognizes that their motivations are different to that of a grain company. It can be frustrating to miss out on big spikes in the market or feel like you have little to no control over what the crop returns to the farm.

“Grain companies are even more risk adverse than farmers, I’d bet,” says Burnett. “But that aside, farmers need to have a marketing plan in place for their crop and recognise there may be volatility around the time reports are released. Sometimes you can use that volatility to your advantage and sometimes not, but you can and should analyze the reports to determine if you need to adjust any part of your marketing plan as a result. “ †

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