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Situation report: January 2007

December 31 Canadian grain stocks
US and world supply-demand
New tariffs keep grain at home and try to stem inflation
Prices

December 31 Canadian grain stocks

Durum wheat farm stocks are at a December 31 low of only 1 950 thousand metric tonnes, a decline of 37% from a year-earlier and the lowest since December 1988. A low carry-in from 2006/2007 reduced supplies and lowered stocks.  Exports were reduced from the record shipments of 2006/2007.  World stocks of durum wheat continue very tight which has increased prices dramatically.

Total wheat excluding durum December 31 stocks were the lowest since December 2002, reflecting reduced 2007 production and a lower carry-in from 2006/2007. Domestic feeding of wheat declined while industrial use of wheat increased marginally as new ethanol capacity came on stream in December.  Exports between August and December 2007 were down a million metric tonnes over the 2006/2007 strong exports due in part to transportation logistics.  However, the Canadian Wheat Board has indicated that it intends to reduce wheat, durum and barley stocks to the lowest level possible during 2007/2008 to take advantage of market opportunities at existing high prices.

An aggressive sales campaign resulted in strong barley exports in the first few months of the crop year.  Barley feeding was significantly reduced as a result of farmers delivering to private grain companies for export, lower animal numbers and feeding of lower-priced feeds including imported corn. Total December 31 farm stocks were down 9% from December 2006; however, large stocks remained in commercial positions.
 
There were large supplies of oats available to market in 2007/2008.  However, farmers were reluctant to deliver their oats at the existing prices, leaving stocks of 2.4 million tonnes on-farms at December 31, up from the five-year average of 2.1 million.

Flaxseed stocks declined 50% from December 2006, the result of a poor 2007 crop and strong exports.  On-farm stocks were 355 thousand metric tonnes, the lowest level in three years.

Canola supplies were lower in 2007/2008 because of reduced 2007 production and a low carry-in from 2006/2007.  However, strong crush margins encouraged record use by domestic crushers.  Exports approximated year-earlier record levels but were lower than earlier anticipated by the trade.  The strong domestic and export demand reduced total December 31 stocks to the lowest level since December 2004 although stocks in commercial positions were a record high.

Supplies of quality dry peas were short in 2007/2008. Higher demand for edible peas from India and for feed peas from the EU resulted in a modest increase in exports and made it more difficult for domestic markets to source peas without increasing bids. A bumper US corn crop and lower corn prices resulted in corn replacing peas as a source of protein in livestock rations.   At 1.2 million tonnes, farm stocks of peas at December 31 were the lowest since December 2003.

Both Canadian and global lentil supplies were lower in 2007/2008.  Export demand was strong, particularly from India and Bangladesh, reducing total December 31 lentil stocks to 365 thousand tonnes, the lowest level since December 2003.

December 31 farm stocks of mustard were the lowest since December 2001.  Two years of low production combined with strong export demand, particularly from the EU, resulted in the decline.

US and world supply–demand

The US Department of Agriculture projected 2007/2008 higher US wheat ending stocks of 0.32 million tonnes in January because of lower domestic use.  At 7.94 million tonnes, this year’s ending stocks were forecast to be the lowest in 60 years.  January world wheat ending stocks also increased 0.87 million tonnes to 110.93 million tonnes mainly as a result of a higher world wheat production estimate.

USDA lowered 2007/2008 US ending stocks of corn 9.11 million tonnes to 36.52 million tonnes, well below traders’ expectations, based on lower estimated production and increased domestic use. This was the third stock decrease in three months.  USDA left its forecast for corn exports unchanged at 62.23 million tonnes, up from the previous record of 60.96 million tonnes in 1979/1980.

Global oilseed production was projected at a record 389.7 million tonnes, a decline of 1.6 million from December 2006 with soybeans accounting for most of the drop.  World 2007/2008 soybean ending stocks fell by 1.08 million tonnes to 46.24 million tonnes.  US soybean ending stocks were projected at 4.76 million tonnes, down 0.27 million tonnes from the December estimate and the lowest since 2003/2004.

New tariffs keep grain at home and try to stem inflation

The European Union suspended import duties on cereals with the exception of oats, buckwheat and millet for 2007/2008 as tight grain supplies pushed prices higher.  Two consecutive years of weather-reduced harvests lowered grain quality, reduced intervention stocks and increased prices.  In September 2007, the EU removed a rule requiring farmers to set aside 10% of their land for autumn and winter 2007 seedings in an effort to increase grain output.  However, so far, farmers have responded with only modest increases in land devoted to winter cereals.

China instituted a temporary grain export tax on January 1, 2007 to increase domestic supplies and reduce food-driven inflation.  In December 2006, the government had removed a 13% tax rebate for major grain exports in an effort to guarantee domestic supplies and reduce inflation.

Russia implemented a temporary 40% duty at no less than 105 euro a tonne on exports of wheat and wheat-rye mixes beginning January 28, 2008 and ending April 30, 2008.  The duty had been 10% since November 2007.  A 30% duty at no less than 70 euro a tonne for barley was also introduced last November.

Prices

US prices were up and down during January as a result of volatile movement on stock markets.  Fear of a US recession and resulting liquidation severely reduced equity market prices and most commodity prices in mid-month.  The US Federal Reserve cut interest rates on January 22nd to try to stem a recession.  Commodity prices regained some strength later in the month.  Prices of most grain futures still rose during January, led by strong Minneapolis wheat futures.

The Canadian Wheat Board’s January 2007/2008 Pool Return Outlook (PRO) showed wheat up $16 to $33 from the December forecast.  World wheat prices continued their upward trend as tight stocks and steady demand provided support.  Continuation of wheat export restrictions in Russia and Argentina, strong US exports and an easing of the Canadian dollar were also price positive.  Lower-than-expected winter wheat seedings and growing condition concerns in the United States pushed new crop prices higher.  The durum wheat PRO was up $20 to $25 as the international market moved higher on continued tight supplies.

Late in January, Argentina announced that it was lifting wheat export restrictions.  Exports will be limited to two million metric tonnes spread over the next five months.  A maximum of 400 thousand tonnes may be shipped per month.

The Canadian Wheat Board’s feed barley PRO’s were up $5 for Pool A that ended on January 31 and $4 for Pool B.  Limited delivery opportunities and logistical capacity restraints led to a small pool but tight global feed supplies supported high prices.  For Pool B, world feed grain prices moved slightly higher during December. The world feed-grain complex was expected to remain steady in the nearby time period, with the price of corn providing a price floor for feed barley.

The malting barley forecast was up $3 a tonne from December. Quality concerns with the Canadian, Australian, and Argentinean malt barley crops were supportive.  Tight supplies are expected to keep prices high until the arrival of the EU new-crop supplies.

The Ontario Wheat Board paid interim payments of between $10 and $30 a tonne for its 2007 pools. The final payments were also announced and were well above harvest prices (see table 24).

Pulse crop markets continued to keep a close watch on the development of the Indian rabi or winter season crop.  Reports of a smaller pulse crop due to a reduced seeded area and poor moisture levels helped Canadian field peas to reach new record price levels.  Green peas topped the psychologically important $367 a metric tonne for product delivered to western Canadian processing plants while whole yellow peas narrowed the spread with greens to reach a new record of $358 a metric tonne.

Chickpea markets remained quiet for much of the month as buyers continued to wait for the Indian harvest to begin in February.  Lentil markets also started the New Year on a quiet note as buying and selling interest roughly balanced.  The end of the month brought more demand for lentils, especially for red lentils, but selling interest did not match buying intentions.  This moved prices for red lentils above previous record highs in both the inter-dealer and grower markets.  The small green lentil market continued to lag behind that of red and large green lentils.  The shipping season has slowed down into traditional small green lentil markets, creating little movement in prices.

The birdseed ingredient markets were buoyed by concerns over the sector’s ability to maintain acres for 2008.  For both confectionary and oil-type sunflowers, new crop bids were at a premium to current crop bids.  Oil-type sunflower prices were also helped by improving market prospects for soft vegetable oils.  Prices for canary seed advanced slightly throughout the month due to limited grower selling interest and concerns about acres for the next crop year.