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Highlights

Situation report – October 2007

Price

Pushed up by strong oil and gold prices, the Canadian dollar continued its steady rise to about US$1.05, the highest value in decades.  At the same time, the US dollar continued to weaken because of credit problems which created bankruptcies and losses in the housing industry.  The US dollar was further weakened by speculation that the Federal Reserve might cut interest rates at the end of October.
   
Special crop prices made gains after experiencing many record, or near-record, lows over the past few years.  The harvest season brought strength to the markets, allowing producers to enjoy higher prices for their production.
The edible pea market rebounded after experiencing some downward pressure throughout the summer.  Yellow peas showed moderate price increases while maple and green peas showed a stronger upward surge in prices.  A contributing factor to the green pea price rise was the smaller supply of edible green peas; 75% of Canadian production is of yellow pea varieties.  Feed peas prices rebounded with a strong upward swing after some depressed prices in the summer.  Farmer deliveries of peas to licensed facilities were heavy.

Desi chickpea prices were stagnant during the fall.  As the harvest season wound down, the market experienced some downward pressure on prices.  Kabuli chickpeas, however, experienced some upward momentum in prices this fall after declines during the summer period.

Lentil prices rebounded this year with strong gains in the market after seeing record lows for the past two to three years.  Laird, Richlea, and Red varieties of lentils saw the largest upward price momentum while Eston and French Green varieties experienced more moderate price increases throughout the year.  Prices remained strong into the fall as end user demand continued to outpace producer selling interests.
 
Yellow mustard prices surged upwards to near historical levels mainly due to some crop problems in various locations throughout the Prairies and to a new entrant into the mustard market.  The new processor brought increased competition as well as innovative pricing options for producers that attracted a lot of attention.  Brown mustard prices showed a steady increase for the year, although they remained behind prices for yellow mustard.  Oriental mustard prices followed brown mustard up at a slower, and slightly unsteady, pace.  The summer saw some stagnation of oriental prices.

Canary seed prices were strong throughout the harvest season after being steady to slightly down during most of the year.  Prices maintained upward momentum over the low prices of the past few years.

The Canadian Wheat Board’s October Pool Return Outlook showed much higher durum wheat price forecasts due to tight world supplies (see table 23).  In contrast, the outlook for milling wheat was lower, the result of a weaker world wheat price outlook and forecasts of a stronger Canadian dollar.  Price forecasts for barley and designated barley were unchanged for October.

On the Chicago Board of Trade, nearby wheat futures’ prices declined substantially over the month.  There was a significant spread between old crop and new crop prices.  Volatility was caused by bullish news that Russia was going to increase its export tariff thereby creating more export business for other countries.  However, the rumours were dispelled.  Prices were lower for new crop wheat as the high prices that existed this crop year increased the likelihood of large wheat plantings next spring.   Corn and oat futures’ prices moved sideways most of the month.  Soybean and soybean meal futures’ prices were also fairly stable during October.  Soybean oil prices increased dramatically, pushed higher by strong demand from the biodiesel industry.

In Winnipeg, the strong Canadian dollar and high ocean freight rates were thought to be restricting export business.  Canola prices were up over the month of October on the strength of the soybean and palm oil markets and the crude oil market, despite the strong dollar.  Although farmer deliveries of canola were up from last year, the canola was sitting in commercial elevators as exports were slow.  By contrast, domestic crushing of canola was strong.  Western barley futures’ prices were mostly flat during October.  Shipments of feed barley from primary elevators to the domestic feed grain industry were down about 37% from last year according to the Canadian Grain Commission.    Shipments of feed wheat for domestic feed approximated last year’s level.  However, overall domestic disappearance of wheat rose rapidly because of use of western wheat for ethanol production.

Harvest completion

By mid-October the harvest was mostly complete in Manitoba and Saskatchewan; however, rain and cool weather combined with late crop maturity, delayed the harvest in Alberta.  Drier weather in mid-month finally allowed Alberta farmers back on the land to get their late crops, primarily canola, harvested.  There were reports of high moisture content canola being harvested and dried to prevent it from over-wintering in the fields.

In Ontario, the soybean harvest was virtually complete by month-end.  The crop was the smallest since 2002 as yields were disappointing.  In late October the corn harvest was progressing well although yields were the lowest for many years due to a lack of moisture during the growing season.  However, the corn crop will still be large as a result of the near-record seeded area.  Planting of a large winter wheat crop was near-completion by month-end as farmers responded to high wheat prices.

Canadian production estimates

Statistics Canada’s September crop production estimates were moderately lower than the July estimates for most crops at the Canada level.  However, there was an increase in spring wheat production, a result of more harvested area and increased yields.  Pea production was also higher due to an increase in reported yields. The estimate of canola production was lower than anticipated by traders, the result of lower yields.  However, the harvest was only 50% complete at the time of the survey in the Prairies with most of the progress reported in the most southerly regions.  The final estimates will be published December 6th.

World supply-demand

The US Department of Agriculture’s October estimates reduced global wheat production.  Despite lower expected use, world stocks at the end of the 2007/2008 crop year were expected to drop 5.4 million tonnes from the September estimate to the lowest level since 1975/1976.  The drop did not result in a market rally as traders were focused on prospects of increased wheat area in 2008/2009 rather than the current tight supplies.

Global oilseed ending stocks rose slightly in October as increased Brazilian stocks were mostly offset by lower Argentinean stocks.  US soybean production declined because of area reductions but lower domestic food use resulted in only a marginal change to 2007/2008 projected ending stocks.  Traders forecast that the final US production number would be even lower which supported the oilseed complex.

World coarse grain supplies were projected lower in October as production was lowered in Australia, Brazil, China, the EU27 and Russia.  However, with lower consumption heavily related to lower corn and sorghum feeding in the United States, global stocks were projected up 3.1 million tonnes. Estimated US corn production, the second largest corn crop on record, was still not as large as expected by traders.  Prices were supported by a cut in corn yields and by strong exports.

Funding announcements

Alberta farmers will be receiving $165 million in assistance to help offset the rising costs of fuel, feed and fertilizer facing the livestock sector.  This will be short-term, transitional assistance until a more long-term solution can be found.  The Alberta Farm Recovery Plan will begin in early November 2007.

New funding was also announced to encourage shipments through the Port of Churchill.  Approximately $68 million will be spent to upgrade the rail line to Churchill.  Another $8 million will be spent on improvements to the port.  Funding is being provided by the Manitoba and Federal governments along with OmniTrax Canada who owns the rail line and the port.  The Canadian Wheat Board is the main shipper from the port.