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Highlights

Situation report – February 2008

US 2008/2009 grains and oilseeds outlook

USDA forecast record 2008/2009 prices for US wheat, corn and soybeans which are expected to increase combined area for the three crops to the highest levels since the mid-1980s. Higher wheat area and production and lower forecast exports are expected to boost 2008/2009 ending stocks above this year's historical lows. By contrast, 2008/2009 corn ending stocks are expected to decline as a smaller area reduces production and higher ethanol use more than offsets lower exports and feed and residual use. A low carry-in from 2007/2008 will reduce supplies of soybeans available in 2008/2009 despite higher plantings. However, reduced exports are expected to result in lower overall use, despite higher crush, and to leave ending stocks mostly unchanged. Soybean seed supplies are said to be limited and may restrict seedings. The estimates were released at USDA's annual Agricultural Outlook Forum.

USDA 2007/2008 supply-demand estimates

The US Department of Agriculture projected 2007/2008 US wheat ending stocks down 0.54 million tonnes in February as a reduction in feed and residual use was more than offset by higher projected exports. At 7.39 million tonnes, this year's ending stocks were forecast to be the lowest since 1947/1948. February world wheat ending stocks declined 0.02 million tonnes from January to 109.7 million tonnes. World stocks were projected to reach their lowest level in 30 years. The decline was mainly a result of estimated lower stocks in Canada, FSU-12 and the United States. World production rose 0.6 million tonnes with increases for Argentina and FSU-12.

Meanwhile, the North Dakota state Industrial Commission voted to lift a long-standing prohibition on purchases of Canadian wheat. Some flour millers forecast that North Dakota wheat supplies may be exhausted and that they may have to import Canadian wheat.

Projected U.S. soybean ending stocks for 2007/2008 were reduced 0.41 million tonnes to 4.35 million tonnes in February. This was a 72% drop from the previous year's record, and the lowest since 2003/2004. The decrease is the result of a solid U.S. export pace. World soybean ending stocks for 2007/2008 decreased by 0.42 million tonnes, to 45.82 million tonnes.

US ending stocks projection of corn for 2007/2008 were unchanged at 36.53 million tonnes for the month of February.

Australian crop production

The Australian Bureau of Agricultural and Resource Economics (ABARE) estimated winter grains production at 22.6 million tonnes, 30% higher than the 2006/2007 drought-reduced harvest but still well below the five-year average of 35 million tonnes. Wheat production was estimated at 13.1 million tonnes, barley production at 5.9 million and canola production at 1.1 million tonnes. The total summer crop area is estimated up by approximately 11%. A lack of irrigation water limited plantings of rice and cotton; however, one of the largest areas on record was seeded to grain sorghum.

Chinese grain production incentives

Heavy January snowstorms in southern China resulted in significant damage to crops, animals and farm buildings and equipment. The government will be providing direct subsidies to farmers to help them recover by purchasing seedlings and machinery. Initial reports that significant portions of the winter rapeseed crop had been damaged pushed soybean futures' prices up in mid-February.

Russia bans wheat exports to Kazakhstan and Belarus

Russia temporarily banned wheat exports to Kazakhstan and Belarus. Earlier, Russia had implemented a 40% tariff on wheat exports to countries outside the Customs Union between January 29, 2008 and April 30, 2008 to keep grain at home and curb inflation. The latest ban is an attempt to stop traders from circumventing the tariff by shipping grain through Baltic ports.

Later in the month Kazakhstan announced that it would also be restricting wheat exports through export tariffs, beginning March 1, 2008 as rising bread prices and bread shortages sparked protests. It further increased state purchasing prices paid to producers. However, it also renewed a contract to supply 750,000 tonnes of wheat to Egypt between March 1, 2008 and February 2009. Kazakhstan is one of the world's largest grain exporters.

Ukraine also has been operating under strict export quotas. However, Ukraine joined the World Trade Organization in February which could result in the removal of the export restrictions.

Kernel Visual Distinguishability removed

The Federal Government announced the removal of KVD on all classes of western Canadian wheat as of August 1, 2008. KVD meant that each wheat class was visually distinct from the other. KVD was necessary for wheat to receive unrestricted registration under Canada's quality assurance system. However, the industry wanted to develop high-yielding wheat varieties for biofuel production and livestock feed without making them look different than the milling wheats. Under the new system, farmers will have to sign a variety declaration when they deliver their wheat in 2008/2009. The technology needed to test delivered wheat by variety is still under development.

Prices

The Canadian Wheat Board raised 2007/2008 initial payments effective February 21, 2008 (see table 23). Non-durum wheat prices increased by $41.60 to $51.60, durum wheat rose $80.50 to $96.50 while malting barley was up $10 to $13 a tonne. Feed barley payments were not adjusted.

The first Canadian Wheat Board 2008/2009 Pool Return Outlook projected strong wheat prices as stocks are expected to remain very low despite increased production prospects. Although higher durum wheat production in 2008/2009 is expected to moderate existing high prices, a low carry-in will support prices. Tight malting barley supplies and strong demand are expected to push malting barley prices higher. Feed barley prices are also expected to be strong as overall feed grain supplies decrease while global demand continues.

US wheat futures' prices continued to soar to unprecedented levels on a world-wide shortage. Due to volatility and high price levels, the US commodity exchanges implemented new price limits for wheat futures. This allowed wheat contracts to continue performing their price discovery and risk mitigation functions without being constrained by price limits. The higher wheat prices also pushed up the price of flour used by bakers and pasta manufacturers.

Soybean futures' prices were sharply higher during February. Soybeans followed wheat prices up in an attempt to maintain enough seeded acres this spring. A tight US Department of Agriculture balance sheet and anticipation of Chinese demand after severe snowstorms were thought to have damaged Chinese rapeseed crops also propped up prices.

Corn futures' prices were buoyed by rallies in the wheat and soybean markets. Strength in crude oil prices and the resulting increased ethanol demand as well as new export business added to the corn price gains. A larger than expected US Department of Agriculture 2008/2009 ending stocks outlook forecast pressured prices on February 22nd but soybean and wheat rallies mitigated the losses.

Oat futures' prices were sharply higher on speculative and commercial buying and strength from other grain futures, particularly wheat.

Winnipeg canola futures' prices and cash prices were up over $100 a tonne during February in volatile trading. Strong soybean and soybean oil values, new export business and slow farmer selling were supportive. Canola crushing margins were severely reduced with the high seed prices but were still positive.

Special crop prices continued to reach record levels as supplies tightened and the market continued to ration demand. Price records continued to be set on Canadian field pea markets as a result of high prices offered by the USDA for field peas as shipment for food aid and reports of tightening Canadian stocks. News that India's rabi season pulse area was down significantly from the previous year helped push markets up to new levels that made it easier to ration supplies.

North American feed pea markets remained quiet throughout the month. Some quality tolerances on export food grade peas relaxed as stocks continued to tighten. As a result, there was a limited availability of natural splits and bleached peas, which would normally be used by domestic feed users. While export buyers maintained low bids for feed peas, local feed mills were forced to pay more because of difficulty sourcing product.

Chickpea markets held steady throughout the month as the market continued to wait for news about the Indian rabi season crop. Reports of inclement weather in northern India that may have damaged the crop caused kabuli chickpea prices to move up mid-month.

North American lentil prices continued to advance under a bullish market environment, resulting from tightening stocks and strong demand. Canada was one of the few markets with available red lentils for export. Turkey was sold out and Australia's small, drought-plagued crop kept it out of the export market. Current price levels entered a zone where demand rationing has begun to occur. At some point, lentil buyers will wait for new crop Turkey supply in anticipation of a cheaper supply. Large, green lentil prices moved higher to an area where demand is rationed. Small green lentil prices moved slowly higher as they served as a cheap food alternative, triggering demand from non-traditional buyers. As supplies of large green and red lentils diminished, foreign buyers have been looking to substitute small green lentils.

Birdseed ingredient markets ended the month on a bullish tone, matching other specialty crop markets, to finish on a stronger note. Canadian canary seed continued to move higher on both grower and inter-dealer markets. The price surge was reported as demand based. Confectionary and oil-type sunflower prices held steady, while new crop prices remained at a small premium.

The Canadian Transportation Agency announced a downward adjustment to the revenue caps for Canadian National Railway and Canadian Pacific Railway for the movement of western Canadian grain in 2007/2008. The reduction was about 8% or approximately $2.59 per metric tonne based on the forecast tonnage to be moved. The revenue cap allows the railways to set their own service rates as long as the total amount stays below the revenue cap set by CTA.