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While the pre harvest, July Statistics Canada estimate will be subject to revision in the "during" harvest, September estimate and the final 2014 post harvest November estimate, the crop will surely be significantly smaller than the 2013 crop. Some regions will, of course, have just as a good crop as last year but others certainly will not. What made 2013 very different was all regions seemed to have a great crop.

This year grain companies and the railroads have likely already scouted out areas that will have to have priority when it comes to railcar allocation and such, and others that will not. This is already evident as rail car orders for Prince Rupert have declined more rapidly than those for other destinations, probably reflecting the declining prospects for Peace River crops which have suffered from dry weather. Rail car allocation will no doubt favour areas where prospects are more promising.

In statistical terms the supply situation for principal field crops - the sum of output, beginning stocks and limited imports, prior to 2013 had been quite stable at just under 90 million tonnes(Chart 2). Increasing output had been offset by declining beginning stocks. Those declining stocks indicate the ability of the handling and transportation system to move supplies. It was not the sort of situation that might have been expected to have attracted investment in increased capacity.

In 2013-14 the massive crop turned this situation around and had everybody - from field to ocean, challenged. But over 7 million tonnes, or 20 percent, more crop was moved by the grain handling and transportation system in 2013-14 than in the previous year. This measure is on crop year basis and on the more critical harvest to harvest basis the increase will be more as pre 2013 harvest movement was limited by the low beginning stocks.

While this did not prevent an increase in ending stocks, the total supply for the 2014-15 crop year will be reduced from last year's level as a result of a smaller crop. It is also evident that the level of ending stocks at about 20 million tonnes compared to less than 10 million tonnes a year earlier was not burdensome, as stocks in the country elevators were relatively low suggesting farmers in aggregate did not place any great urgency on moving the remains of the 2014 crop.

Grain movement prospects for the coming year will be very dependent on the urgency farmers place on moving grain. The best/worst case scenario, best in terms of the amount grain to be moved and worst in terms of farmers market access is for this year's movement to exceed that of last year. Use would exceed 86 million tonnes and ending stocks would be reduced to below the low of the summer of 2013. The aftermath of the challenges of 2013 crop year would be a memory.

Some caution is necessary over this best/worst case scenario in the context of very large 2014 US corn and soybean harvests. This may limit rail car availability particularly in the context of Canadian railroads ability to retain/secure cars from south of the border.

This is an unlikely extreme. But how much grain farmers choose to market will depend on the space they will need for the 2014 which is, of course, very immediate and for the 2015 crop which is deferred, cash flow needs, tax and income averaging and perceptions of price prospects. And the latter needs a little explanation.

Prairie wheat prices are $60 to $70 per tonne, or 30 to 40 percent, below year ago levels. And it is no secret that most of this difference is the result of wider basis rather than lower international prices. If Edmonton area prices are typical, it is evident the chronic widening of basis last fall was only partially corrected this summer(Chart 3). It is within the realms of possibility and reasonableness that some farmers are waiting for the kind of price relationships that existed last summer to return. This may be a significant factor in the slow down in farmer deliveries this summer. No explanation is provided as to why basis levels for wheat have not narrowed more than they have.

For canola the situation is more complex with the value of two products, vegetable oil and meal oil to be considered. Other things being equal canola oil almost certainly commands a quality premium to most other vegetable oils while the converse is true for canola meal. And at the current time demand for protein meals is more robust than that for vegetable oils. Hence a rather mixed value message.

David Walker
August 27, 2014