FORT COLLINS, (Colo.): Severe drought has slashed expected US spring wheat output to a three-decade low and across the border on the Canadian Prairies, crops are in similarly tough shape. With little relief in sight, production forecasts should fall, and other global export markets will likely have to pick up Canada's slack.
A significant amount of Canada's annual wheat and canola output go to exports, and those products are important on the world stage. Top customer China is among those that may need to seek supplies elsewhere, and trade rival Australia could be a good candidate to help fill that gap.
Canada's Prairies have been in a drought ever since the growing season began, and with low rainfall totals and warm temperatures, that situation has worsened within the last month. Forecasts as of Wednesday continue to suggest the warm and dry trend is likely to continue through at least the end of the month.
In Saskatchewan, Canada's top spring wheat and canola province, spring wheat was rated 25percent good or excellent as of July 12, down from 77percent a month earlier. Just 18percent of canola was good or excellent, down from 64percent.
No. 2 producer Alberta has suffered a similar fate. Spring wheat was 39percent good or excellent as of July 13, down from 84percent a month earlier, and canola had fallen to 33percent from 80percent. The two provinces combine for roughly 80percent of Canada's spring wheat and canola output.
These health trends resemble those for US spring wheat, but the US crop started worse. As of Sunday, just 11percent of US spring wheat was in good or excellent shape, down from 27percent a month earlier and 45percent in late May.
Futures markets have responded with Minneapolis wheat this week hitting an 8-1/2-year high for the front-month contract of $9.44-1/2 per bushel. ICE canola hit an all-time high for the November contract last week of C$949 per tonne.
The US Department of Agriculture last week pegged US spring wheat yield down 37percent from the previous three-year average, which contained strong but steady results. That put the crop estimate at 345 million bushels, the smallest harvest since 1988, another terrible drought year.
The US durum wheat harvest is expected at 37.2 million bushels, some 46percent less than last year and the smallest in 60 years.
However, USDA's Canadian all-wheat yield is too high for the current situation, sitting about 1percent above the three-year average. About 94percent of wheat planted in Canada this year is spring or durum wheat, and the latter is in even worse shape. Canadian wheat yields in 1988 were also among the worst ever, falling 37percent below the prior three years amid extreme dryness and heat. If those losses happened this year, Canada's crop would plunge about 11.7 million tonnes (429 million bushels) from USDA's latest 31.5 million, not considering any possible acreage abandonment.
Canada planted a lot less canola in 1988 than it does now, but 2012 produced the worst relative yields in recent memory during another hot and dry summer. Canola yield fell about 20percent from average levels that year, and if the same occurred this year it would remove at least 4 million tonnes from USDA's current 20.2 million.
EXPORT SWITCH
The loss in wheat and canola production is significant for the export market as about half Canada's canola crop and about three-fourths of its wheat is exported annually. The country accounts for two-thirds of global canola exports and it is the No. 3 wheat exporter, making up about 13percent of trade.
China's demand for Canadian wheat in the first nine months of the current marketing year was more than double the three-year average. China was the top recipient of the grain, accounting for 12percent. Indonesia and Peru were also big players at 8percent each.
China blocked Canada's two largest canola handlers two years ago over alleged pest concerns, but exports to China have still rebounded versus last year. Between August and December 2020, China accounted for 23percent of Canada's canola shipments, behind only the European Union due to crop shortfalls there. Japan is another prominent canola customer.
China's import needs for canola and wheat pale in comparison to that for soybeans, for example, but it still sits among the top importers. Despite losses in Canada, China does have an alternative route in Australia.
Trade relations between the two countries soured last year when Canberra announced plans to investigate COVID-19 origins, prompting Beijing to launch steep tariffs on Australian goods. The 80.5percent tariff on barley was so severe that it basically cut off that trade, but China has been increasing wheat and canola imports from Australia.
Australia is the No. 2 exporter of canola and is No. 5 in wheat, and the country's production levels recently recovered after a string of drought-damaged harvests. The extra Australian supply is key, especially in the Chinese market, but the expected losses out of Canada could be historic.
Canada does not have an excess of canola in reserves, either, as stocks of the oilseed at the end of 2020 were down 24percent on the year, hitting an eight-year low for the date. All wheat stocks on Dec. 31 had fallen 4percent on the year, reaching a three-year low.
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