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Typically exports tend to decline through the summer and until new crop supplies become available after harvest. In a statistical sense this drying up of supplies should not occur for a few months yet. Even if shipments - export and domestic, continue at the current pace supplies in the country will statistically remain relatively abundant. Farmer deliveries will exceed 50 million tonnes for the 2013-14 crop year, about 7 million tonnes above those of last year. Supplies are about 20 million tonnes larger so there will still be a hefty accumulation of year end stocks. But much of that could be worked off during the six weeks in the new crop year before new crop is available in volume. This may not happen as famers restrain their marketing. What may statistically be a large carryover may not really be a burdensome one.

There is, however, evidence that in a practical context supplies available for shipment by the railways are drying up. Country elevator stocks were much above recent year levels early in the spring and remained so during the usual run down in supplies for shipment as farmers were busy with the 2014 crop (Chart 2). But there has yet to be any indication that there will be the usual recharging of country elevator stocks now most of the field work has been completed.

Further there has been a dramatic decline in unfilled rail car orders by grain companies with the decline reportedly resulting from cancellations rather than fills. For CN Rail, this wish list of unfilled orders has declined from almost 32,000 spots or over six weeks of grain car supply in early April to under 8,000 or less than 10 days of supply in mid July (Chart 3).

This development was not unexpected with two factors at play. In the first case farmers have marketed record amounts of grain since harvest (Chart 4). Over 40 million tonnes of all crops have been delivered into the system since October. After adjusting for soybeans and special crops not included in data until this year, deliveries are running about 20 percent ahead of a year ago. Farmers may now be taking a cautious approach to running down farm storage with 2014 crop prospects not entirely certain.

The second consideration is that price basis has been very slow to recover from the devastating declines late in 2013 (Chart 5). Although measures of the general level of basis are far from precise, it is clear that grain companies have yet to bid up basis to levels of a year ago. There may be a very reasonable expectation that basis levels are about to recover and therefore worth waiting for.

Naturally both, rather than one or the other, of these factors, are at play. As is the case in most years, with 2013 being the exception, crop prospects are mixed possibly with too much moisture for above average yields in some areas and too little to sustain the same in others. Between the two there are large areas where there are no complaints about the weather and farmers must be considering the need to free up more bin space without too much consideration for the benefit of waiting for grain companies to narrow their basis.

There is likely, therefore, to be a pickup in farmer marketing prior to harvest as farmers adjust their marketing strategies in August just before taking off the 2014 crop.

If harvest conditions are reasonable there is likely to be less distressed grain this fall than last. With farmers likely more optimistic about crop yields following last year's experience, they should be better prepared for getting the 2014 crop under cover than they were in 2013. A serious challenge with tough and damp grain is not something we have seen for some years but is always possible.

David Walker
July 18, 2014