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Highlights – August 2007

Situation report

Canola production rises, wheat falls

Statistics Canada’s surveyed approximately 17,000 farmers in late July and early August and published the first 2007 production estimates on July 23rd.

Even though farmers were concerned about the effects of recent drought-like growing conditions in the Prairie Provinces they reported that production of major crops, with the exception of wheat and flaxseed, should improve from the 2006 estimates.   The growth was mainly due to increases in harvested area.

Prairie farmers expected to harvest 15.1 million tonnes of wheat (excluding durum), a decline of 20.6% when compared to last year.  Production was expected to decline in all three Prairie Provinces.  Durum wheat output, on the other hand, was anticipated to rise by 6.0% to 3.5 million tonnes.

The 2007 canola production in the Prairies increased in contrast with flaxseed production which fell.   Prairie canola production was estimated at 9.2 million tonnes with an expected record harvest area of 14.2 million acres. The previous record was set in 1994 with 14.0 million acres.  Increased production was expected in all three Prairie Provinces.  According to experts, new canola varieties that are more heat tolerant could be responsible for the rise.

Also in the Prairies, output of oats, barley and dry field peas rose due to strong increases in harvested area.  Production of most major special crops, except sunflowers, was higher than in 2006.

Despite dry conditions in the East, grain corn production should be a record in both Quebec and Ontario.  Farmers in Quebec may produce a record 3.6 million tonnes of grain corn in 2007, a 33.4% increase over 2006.  The previous record was set in 2003 with 3.5 million tonnes.  Similarly in Ontario, grain corn could increase to a record of 6.4 million tonnes, a rise of 9.0%.  The previous record was set in 1998 at 6.0 million tonnes.

Ontario winter wheat production in 2007 was less than half of the record 2006 crop as seeded area was significantly reduced and yields returned to more-normal levels.

Soybean production in Quebec was expected to decline by 9.4% to 485 000 tonnes due to a comparable decrease in harvested area. Ontario farmers also expected a decrease in soybean production.  Output was estimated down 18.4% over 2006, an equivalent of a 9.8 bushel per acre drop in production.

The harvest progressed well ahead of normal in many parts of the Prairies as a result of hot weather which accelerated crop development but deteriorated yields for some crops. Significant hail damage occurred in the Dauphin/Swan River region of Manitoba while heavy rains in northern Saskatchewan and in parts of Alberta caused some localized flooding.

New crushing plant

Construction is set to begin this summer for the Louis Dreyfus Canada canola crushing plant in Yorkton, Saskatchewan.  The plant is expected to be operational in the first quarter of 2009.  During the 2006/07 crop year 3,578,607 metric tonnes of canola were crushed, 4.56% higher than the previous record set in 2005/06 when 3,422,621 tonnes were crushed.

ICE buys Winnipeg Commodity Exchange

IntercontinentalExchange Inc’s purchase bid for the Winnipeg Commodity Exchange was accepted.  ICE made their second and successful bid of $77.59 per common share in response to an unsolicited bid from a third party.

US corn output a record while soybean production plummets

The US Department of Agriculture forecast corn production at 331.577 million metric tonnes, up 24% from 2006 and 17% above 2005. This production was expected to be a record, given the second highest yield on record and the most area harvested for grain since the 30’s.  By contrast, soybean production was forecast at 71.448 million metric tonnes, down 18% from the 2006 record and down 14% from 2005.  Winter wheat production was down 2% from the USDA’s June estimate but still 18% above 2006 because of larger harvested area.

World stocks tighten further

Global 2007/2008 wheat production was projected lower this month by USDA as reduced production was anticipated in the EU-27, the United States, Canada, Turkey and Brazil.  Output increased to a lesser level in India and the FSU-12.  Both imports and exports were expected to increase.  The lower production and increased consumption were anticipated to push world 2007/2008 ending stocks to 114.78 million metric tonnes, down from 124.9 in 2006/2007 and 149.16 in 2005/2006.

The world coarse grain outlook for 2007/2008 was similar to that for wheat with lower production, increased trade and lower ending stocks.  Adverse weather in southeastern Europe lowered corn and barley output while heat in Alberta and Saskatchewan reduced barley production in Canada.  Global 2007/2008 ending stocks were estimated by USDA at 130.86 million metric tonnes, up marginally from 129.88 million tonnes in 2006/2007 but down significantly from 163.72 million tonnes in 2005/2006.

Forecast world 2007/2008 oilseed production at 391.34 million metric tonnes is about the same as in 2005/2006 but down from 405.00 million tonnes in 2006/2007. Projected 2007/2008 ending stocks are now 57.72 million tonnes, significantly lower than the 72.29 million tonnes at the end of 2006/2007 according to USDA.

Prices

Chicago soybean futures’ prices saw big declines because of a massive decline in global stock markets that depressed grain markets in mid-August.   Prices were further pressured down by slow exports and impending rain in dry regions.  Prices rallied later in the month as worries about flooding in the US upper Midwest and heat and dryness in the southern soybean belt created uncertainty about yields.

Chicago oat futures’ prices traded lower early in the month in thin trade with little fresh news as the market waited for news about the size of the Canadian crop.   The lower prices pressured cash bids on the Canadian Prairies.  There was some spillover strength from other crops in mid-month.  Prices fell when Statistics Canada published a 2007 production number higher than most trade forecasts.

Chicago corn futures’ prices traded mostly higher in August with declines from the stock market drop moderated by good export demand.   The crop was far enough along that weather was no longer a market factor.  Spillover strength from soybeans and technical buying pushed prices higher later in August.  US wheat prices continued upward on strong export demand and tight global stocks to record price levels.

The US stock market decline pushed canola prices down in the midst of harvest pressure, slow export demand and a lack of farmer selling.  Drops in barley were moderated by reports of lower than expected yields in Alberta.  However, the barley export line up was good as grain companies sold aggressively with expectations of an open market in 2007/2008.  The CWB is honoring those contracts.    Export demand was strong because of crop problems in Europe, Russia and Ukraine.  Ocean freight rates continued to rise due to a lack of vessels.  The Canadian dollar showed some short term volatility and decline but the higher ocean freight rates negated any export price advantage created by the lower dollar.

The Canadian Wheat Board announced the 2007/2008 initial payments for wheat and durum wheat on August 2 (see table 23).  The Board raised its forecast prices for wheat and durum on August 23rd.  Wheat prices increased $21 a tonne compared to July because world stocks were further tightened.   Durum wheat PROs increased $45 to $50 a tonne as global production estimates have continued to decline and prices have continued to strengthen. World supplies are expected to remain tight which is expected to keep durum prices high throughout the 2007/2008 crop year.

The price outlook for feed barley strengthened during August because Australian crop production forecasts have declined.  The Board said that a sizable Australian crop would be needed to prevent global barley supplies from further tightening.  The August 23rd Pool A PRO increased $11 a tonne over the last forecast of $206 a tonne on August 13th.  Designated barley PROs increased $11-$13 a tonne based on tight global supply fundamentals.