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Canada wheat output to fall as rail setbacks bite

Canada's wheat production will slump by more than 20% this year, farm ministry officials cautioned as, warning of "burdensome carry-in stocks", they forecast that lower prices would prompt a drop of 1.3m acres in plantings.

Canada's wheat crop will tumble from the record high of 37.53m tonnes achieved last year to 29.7m tonnes for 2014, the country's farm ministry, AAFC, said.

The forecast reflects largely an expectation of a retreat in yield from the record levels of last year, boosted by benign weather, but also a forecast of a drop of 536,000 hectares (1.32m acres) in sowings as huge supplies left over from last season depress prices and spur farmers to switch to other crops.

"Burdensome carry-in stocks will be an over-riding issue for 2014-15," AAFC said, pegging Canada's wheat stocks at the close of 2013-14 at a 31-year high of 11.5m tonnes.

The ministry cut to Can$180-210 a tonne its forecast for wheat prices that farmers will receive for their 2013 crop, down from  a previous forecast of Can$200-230 a tonne and well below the 2012-13 average of Can$285 a tonne.

'Low, or even no, bids'

The forecasts also come amid growing concerns over the challenge that a squeeze on Canadian logistics is causing to the country's grain sector, with the rail and port system struggling to cope with a record grains harvest as well as mounting demands from the oil industry.

US Wheat Associates became the latest to caution over the impact of the logjam, saying that because of the shortage of transport to take grains to port "farmers report that country elevators are only offering low, or even no, bids on wheat for nearby delivery.

"There are also reports that rail shipments arrive at export terminals with the wrong grain at the wrong time or just don't arrive at all," causing a "growing backlog of ships, more than the available anchorage at Vancouver, ringing up more than $10m in demurrage fees so far".

On the railways, "local analysts indicated that major rail carriers Canadian National and Canadian Pacific accumulated a backlog of 40,000 cars from August to December - that is eight times more than last year, with grain capacity of 4.0m tonnes", said Shawn Campbell, US Wheat Associates assistant director.

'Main challenges'

AAFC acknowledged that, for 2013-14, "transportation, storage and marketing issues are expected to be the main challenges facing the sector this crop year".

However, it lowered its estimate for grain and oilseed exports this season by a modest 400,000 tonnes to 39.1m tonnes.

This included a 100,000-tonne downgrade, to 21.9m tonnes, in the forecast for wheat shipments, although a figure still up 12.4% year on year.

Canada's wheat exports rose by some 8% in the first half of the marketing year, despite a 14% decline to 1.5m tonnes in December volumes.

Less barley, more oats

Farmers will also cut sowings of barley and corn thanks to lower prices, AAFC said.

However, they will grow more oats, whose price has soared as Canada's transport hiccups have prohibited delivery.

"The market has being pricing in the tight supplies and Canadian logistic problems for many weeks now," the ministry said.

"The Chicago oat futures market has been inverted for most of the fall as US end users and market trading funds have consistently bid up the nearby futures month to encourage delivery."

Canola outlook

Plantings of canola will soar by nearly 700,000 hectares to 8.75m hectares "because of higher prices relative to other western Canadian field crops".

However, output will fall by 11% from last year's record high to 16.0m tonnes "as yields are forecast to decrease to more normal levels".

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