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The high proportion of crops being held on farm, as opposed in the licensed elevator system, is also noteworthy. Two related factors are probably at play with this. It seems farmers are generally happy to carry over an increased crop inventory into the new crop year after record marketing over the previous 12 months. This is likely to be most pronounced where 2014 harvest prospects are not good.

The related factor is the narrowing but still wide price basis relative to 12 months back. International wheat prices are certainly lower than they were a year ago but a wider basis accentuates this and reluctance of some farmers to clear their bins.

The increase in Canadian crop use implicit from the stock data is significant. But the stocks themselves were higher than the low level of a year ago, with some commodity stocks a multiple of year ago levels. This naturally has received much publicity (Table 1). But the situation is not as troublesome as year-over-year comparisons suggest.

This year's canola year end stocks were at record levels and four times those at July 31, 2013. And even on the relative, as opposed to absolute, stocks use measurement, they were not much below the 2010 level (Chart 2). There has to be, however, considerable comfort taken from the fact it took just two years after 2010 for canola stocks to decline to a level that hampered market development. And this was during a period when output was expanding and there were challenges concerning the acceptance of canola by China, a major market for canola.

Confidence that the relatively high level of stocks will be readily absorbed by an expanding market and not last long is evident from the increase in area seeded to canola this spring. Or at least the prospects for canola were seen as being better than those for other crops despite the dramatic increase in yearend stocks.

The situation for wheat may be more challenging even if the increase in stocks levels was less than for canola. A symmetry with canola is apparent (Chart 3).

The concern over wheat stocks is because the market for wheat is not growing in the manner that that for canola and its products is. Canadian wheat prospect may yet benefit from the challenges that certain other major wheat exporters are experiencing with the quality of their 2014 harvests. Unfortunately Prairie near harvest and harvest weather conditions have not been conducive for a high quality 2014 Canadian crop. But this may provide favourable prospects for better quality wheat that has been carried over. In that context a stocks to use ratio of 34 percent does not seem so onerous.

Although the carry over stock and supply situation is certainly not as serious as those of past years, the rail transportation situation may be more challenging and uncertain this year than last. This relates to the reality that rail facilities are to greater degree than we might appreciate shared between the US and Canada. Canada played politics with the railroads last year, something that has probably not been missed by grain farmers south of the Forty Ninth. With record US crop supplies to move this year, US farmers may resort to lobbying their governments to pressure their railways in the same way as Canadian farmers did last year.

This might not have been pretty for Prairie farmers, or indeed the railways. But a much smaller Prairie crop than in 2013 and less to move may mean the political pressure may conveniently subside north of the border.

David Walker
September 16, 2014