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Situation report – April 2008

Canadian seeding intentions

Statistics Canada's surveyed 16,000 farmers for the area they intended to seed this spring. In the west, farmers anticipated seeding a record area of canola and field peas, along with more spring wheat and durum wheat. The area seeded to oats and barley was expected to decline, likely because offered prices were lower than farmers liked. Early indications were that summerfallow would drop significantly. Dry seeding conditions on the Prairies were causing concern with some farmers still undecided about their final plans. As the price of many competing grains was quite high, farmers were looking to reduce input costs and the risk of disease.

In Eastern Canada, Quebec growers may seed a record area of soybeans, while Ontario producers intended to seed the smallest area since 2003. Farmers in Ontario and Quebec expected to seed less grain corn, a result of the large winter wheat crop seeded last fall.

Seeding began in southern regions in mid-April with peas and spring cereals seeded in Saskatchewan. However, snow in southern Alberta and along the Alberta/Saskatchewan border tracking in a northeast direction on April 20th helped improve moisture conditions while delaying seeding. In Manitoba, seeding was stalled by cool weather with some snow bringing concerns about early plantings in cool soils...

US Prospective plantings

In the United States, corn growers intended to plant 8% less corn this year compared to the near-record level of 2007. The US Department of Agriculture (USDA) indicated that favorable prices for other crops, high input costs for corn and crop rotation considerations motivated some farmers to decrease corn areas. However, corn area is still high by historical levels as a result of expansion in the ethanol industry. By contrast, US soybean area was expected to rise 18% in almost all states on high prices and strong demand. This was at the high end of traders expectations. The All wheat area was estimated up 6% from 2007. Winter wheat area rose 4% with good over-wintering reported while spring wheat was anticipated to increase eight percent and durum wheat 22%. Oat plantings were expected to be down 9% from 2007 and to be the lowest on record. Farmers also intended to reduce barley area to the fourth lowest area on record. Canola area was anticipated to decline 15% while flaxseed area could rise marginally. Sunflower area is continuing to increase, mainly as a result of more area for oil type varieties.

Planting of corn was slow as a result of rain and cool temperatures. By April 28th, only 10% of corn was planted compared to 20% in 2007 and the five-year average of 35%. Forty-six per cent of the winter wheat was in good or excellent condition with only 15% headed.

US and world supply-demand

The US Department of Agriculture reduced projected US corn ending stocks for 2007/2008 because increased use for feed and residual uses more than offset reduced use for ethanol. USDA indicated that rising ethanol prices continued to support producer margins and that capacity utilization for existing plants remained strong; however, the pace of new plant startups lagged expectations. US corn exports were projected higher. World coarse grain stocks were projected lower, mainly because of the US corn stock reduction.

Global oilseed ending stocks for 2007/2008 were projected up mainly as a result of higher soybean stocks in the United States, Brazil and Argentina. In Brazil, the increase was related to a lower crush and reduced prospects for exports while in Argentina, a reduced crush resulting from lower-than-expected soybean meal exports pushed the stock estimate higher. US soybean stocks were higher despite strong exports because of increased imports and a reduction in domestic use other than for crushing.

Forecasts for world wheat ending stocks were up 2.1 million tonnes in April with Ukraine and the EU-27 each up by 1.0 million tonnes and Australia up 0.5 million tonnes. Feed use was projected down in Ukraine while exports were down in the EU-27 and in Australia. Global wheat supplies were anticipated to be 1.5 million tonnes higher than last month, a result of production revisions in some non-exporting countries.

Argentine strike

Argentine farmers suspended their three week strike for a month in early April. The farmers were asking the government to rescind export tax increases imposed in early March. The farmers strike disrupted the transportation system, blocked exports and caused food shortages. During the strike, both the United States and Canada sold wheat to Brazil who normally buys most of their wheat from Argentina. Many companies were forced to declare 'force majeur' which allowed them to extend the deadline for delivering their grains. While negotiations between the farmers and the Argentine government were continuing, soybean futures' prices at the Chicago Board of Trade rose significantly on the increased demand for US soybeans. OIL WORLD projected a decrease in Argentine soybean plantings for the 2009 harvest as the increase in export taxes reduced the competitiveness of soybeans compared to other crops . Argentina is the world's largest exporter of soybean products. Late in the month, the talks broke down as the farmers rejected the proposed agenda for negotiations.

Rice shortages

US rice futures' prices soared on world supply shortage concerns and hoarding in light of strong world demand. Many major exporters including India and Vietnam reduced or stopped exports. Analysts reported that it was the specialty rices such as jasmine and basmati that were experiencing actual physical world shortages. Although regular rice supplies appear to be adequate, markets were thin as sellers were anticipating price increases as some countries stockpiled supplies. Demand for US rice was strong because of the export restrictions in other countries and lower prices.

The Bank of Canada reduced its key interest rate by half a percentage point to 3% on April 22nd. The bank also reduced its outlook for Canadian economic growth to 1.4% for 2008. The reduced growth projection is related to the deep and protracted slowdown in the US economy. US exports have been declining and tightening credit conditions and softening sentiments are expected to moderate business investment and consumer spending in the United States.

The Canadian Wheat Board (CWB) raised the initial payments for wheat, durum and Pool B feed barley on April 17, 2008 (see table 23). The increases for wheat ranged from $34 to $53 a tonne, for durum $80 a tonne and for Pool B feed barley $65 a tonne. Western barley futures' prices on the ICE exchange were up substantially over the month.

The CWB lowered its 2008/2009 Pool Return Outlook for milling wheat $18 to $25 a tonne on prospects of a large increase in world wheat production and high price volatility on US futures' markets. Milling durum wheat values were $20 a tonne lower as intended North America seedings were up substantially and the EU crop prospects were good. Projected returns for designated barley dropped $6 a tonne, mainly on weak demand from China despite low world stocks. Forecasts for feed barley were unchanged.

Wheat futures' prices dropped sharply on all US commodity exchanges during April. Prices fell on rains in the US Plains and expectations of a big world crop. There was also pressure from the removal of export restrictions in Ukraine. Earlier, prices had been supported by dry weather in the hard, red winter wheat areas of the western Plains, some new export demand and a recovery from March's large sell-off.

Winnipeg canola futures' prices traded sideways most of April and ended the month up marginally. There was a mid-month rally based on the USDA supply-demand projections for tight soybean stocks. Rumors of new export sales were also price supportive; however, most of the demand came from domestic crushers.

Chicago soybean futures' prices rose over the month on the need to maintain acres from corn, talk of strikes in Argentina and Brazil, spillover support from soybean oil futures and record-high crude oil prices and from broad-based commodity buying. This was a recovery from the March 31 price decline as a result of the higher-than-expected USDA estimated 2008 seeded area. Some bearish influence came from wet conditions in the US Midwest which had the potential to delay corn planting and increase soybean area.

Chicago corn futures' prices were volatile but trended higher over the month. Concerns over late planting due to wet weather, the need to buy more acres from soybeans, tight stocks and speculative interest in commodities pushed prices higher despite pressure from weaker wheat futures' prices and from profit-taking.

US oat futures' prices traded mostly sideways during April, mainly on spillover from other commodities. Minor support was provided by Statistics Canada's seeding intentions which showed oat plantings down from 2007 and at the low end of traders' expectations.

Field pea prices decreased slightly during the month as export demand slowed when the Indian new crop was harvested. Inventory build up in India also put downward pressure on prices. The slowdown in demand had the largest effect on yellow pea prices, while a relatively tight supply situation in Canada held green pea prices steady.

Demand for feed peas virtually disappeared in Western Canada as most of the supply was believed to have already been blended up for use in the edible pea market. Any feed peas that were of good quality had been blended up because of strong demand for edible peas from the global market, particularly India. There was a complete lack of interest from Canada's hog and cattle industry to feed peas at the high price levels.

International chickpea markets remained steady due to quiet trading activity. Mexico's harvest was still underway, allowing Mexican exporters to dominate current demand for kabuli chickpeas. Exporters in India continued to remain out of the market in anticipation of tightening Mexican supplies. Potentially smaller crops in North America and Turkey were expected to add strength to chickpea markets moving into the new crop marketing year.

The world lentil market has been influenced by changes in area and droughts in the main producing regions. A big driver in the market was the Indian export ban and increased imports to the Indian subcontinent. Interest in red lentils was increased by reports of limited new crop buying by traders on the Indian subcontinent and by expectations that red lentil production will be down in Turkey. Green lentil prices climbed steadily throughout the marketing year based on solid demand from South America. This demand is expected to continue until new crop supplies are available in the fall.

Mustard prices have not moved since February, maintaining the high prices seen earlier in the 2007/2008 marketing year. A tight supply/demand balance helped to keep prices firm and was expected to spill into new crop pricing as well.

Lower prices in the export market placed downward pressure on Canadian canary seed markets. The need for dealers to convert inventory into cash outweighed grower selling interests in moving prices down.

Confectionary sunflower prices remained steady while oil-type sunflower prices were mainly firmer in response to gains in the oil and meal futures markets.