Canada’s wheat area will fall to a five-year low in 2016, undermined by knock-on effects of a more stable currency, and lead to lower exports too, US officials said, taking a more downbeat view than some other commentators.
Canada’s wheat area, on a harvested basis, will drop by 340,000 hectares to 9.26m hectares, the US Department of Agriculture’s Toronto bureau said, in its first forecast for this year’s Canadian crop.
The estimate was below initial forecasts from some other commentators, such as the International Grains Council, which estimates that Canadian farmers will harvest 9.5m acres of the grain, a drop of some 100,000 hectares.
“Durum area is projected to increase slightly, partly at the expense of spring wheat,” which accounts for the vast majority of wheat sowings, the IGC said, while seeing better weather as having enabled a 24% jump to some 700,000 hectares in the relatively small level of winter plantings.
AAFC, Canada’s farm ministry, has forecast a small rise in harvested area this year, seeing growth in winter crop and durum plantings more than offsetting a 2% decline in spring wheat area.
The USDA bureau said its export factored in the knock-on effects of what it believed would be a more stable period this year for the Canadian dollar, which lost more than 16% against the dollar over 2015.
“Last year, while the Canadian dollar was falling, Canadian grain producers were enjoying the ability to buy inputs with a stronger Canadian dollar in the fall and spring, and then sell the crop when the Canadian dollar was weaker,” the bureau said in a report.
With a weaker dollar boosting the value, in local terms, of assets traded in US dollar, this recipe of currency movements would be helpful for margins.
However, now, “the stabilisation of the Canadian dollar is expected to result in less expansion of land in production and foster a drive to efficiencies”, the briefing said.
‘Dry spring predicted’
The bureau forecast a recovery to average yields in Canada next year, despite the continuation of the El Nino blamed for undue dryness in 2015.
“A dry spring is predicted for western Canada due to a carry-over from a dry summer and below-average precipitation occurring in the winter months,” the report said.
While acknowledging that the El Nino weather pattern is weakening, the bureau said that its effects would “likely prevail through the spring of 2016 resulting in continued moisture deficits.
“Most recent weather data suggests that the La Nina effects,” which would bring wetter weather to Western Canada, the main production region, “will only occur close to the harvest season.”
Canada can expect a 28.3m-tonne harvest, an increase of some 700,000 tonnes year on year.
However, the bureau said that production at this level was too small to support elevated exports, seeming them fall back 500,000 tonnes year on year to 20.0m tonnes, the lowest since 2011-12.
“Lower wheat supplies will limit Canadian wheat exports in 2016-17,” the briefing said.
AAFC has forecast a wheat harvest of 29.2m tonnes, and exports of 20.8m tonnes next season.