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Situation report
August 2008

Canadian canola and soybean production expected to rise

Statistics Canada surveyed approximately 15,100 farmers in late July and early August and published the first 2008 production estimates on August 22nd.

Even though farmers were concerned about weather-related challenges earlier in the growing season, such as excess rainfall in many areas of the country and hail in parts of the Prairies, they reported that production of some major crops, in particular canola, soybean and wheat, should notably exceed the 2007 production level. Actual 2008 production will depend to a large extent on the weather throughout the rest of the growing season.

Prairie farmers reported they were expecting to produce 10.4 million metric tonnes of canola exceeding the previous record production of 9.5 million metric tonnes in 2007.  This projection was based on higher anticipated yield of 29.3 bushels per acre and an expected strong harvest area of 15.6 million acres.  The main reasons for this increase were strong demand for biodiesel, increasing crushings and high prices at the time of planting. About 98% of canola production in Canada comes from Saskatchewan, Alberta and Manitoba.   Two of theses provinces could reach previously not attained levels of canola production. Manitoba production could grow to 2.1 million tonnes, similar to the previous high level of 2.0 million tonnes in 2007.  Alberta framers also reported an expected production increase for canola to 3.8 million metric tonnes, the last provincial record of 3.7 million metric tonnes was set in 2005.

The provinces of Québec and Ontario produce approximately 90% of the Canadian soybean production.  In 2008, Canadian soybean production was expected to reach new heights with 3.2 million metric tonnes. Québec soybean production was projected at 630,000 metric tones, a 33.5% increase from 2007.  The last provincial record of 535,000 metric tonnes was set in 2006.  In spite of better prices for both commodities, producers appeared to favour the lower cost of production for soybeans over corn in their choice of grains to grow in 2008.  In Ontario, farmers were also expecting an increase in soybean production with projections at 2.3 million metric tonnes, up 12.5% from 2007.  Even though there was a decrease in soybean acreage, the yield was expected to rise by 6.5 bushel per acre to 39.5 bushel per acre.

Prairie farmers reported they expect to harvest an above-average 17.5 million metric tonnes of wheat excluding durum, a 19.6% increase over 2007.  The increase resulted from a higher yield and harvested area. Durum production in the Prairies was expected to rise 33.4% to 4.9 million metric tonnes, an increase of 1.2 million metric tonnes from 2007, resulting from expanded harvested area to 5.9 million acres.

Production of grain corn, barley and oats were projected to decrease because of reductions in harvested area.  Grain corn production in particular was expected to decrease by 15.1% to 9.9 million metric tonnes. In Québec, farmers increased soybean acreage at the expense of corn.  Ontario farmers, due to favourable weather conditions, expanded winter wheat plantings on land usually used for corn.

US and World supply-demand

The US Department of Agriculture (USDA) increased its 2008 corn production from last month’s projection. US grain corn production was up by 14.6 million metric tonnes to 312.1 million metric tonnes based on its first survey-based forecast.  The 2008 production would be the second highest on record, behind 2007 when US producers harvested the most acres of grain corn since 1933.  Based on August 1st conditions, US yield was expected to average 155.0 bushels per acre, a 3.9 bushels per acre increase from last year and higher than the USDA July prediction of 148.4 bushels per acre.  If realised, this yield would be the second highest on record, behind 2004.  According to the Department, nearly ideal growing conditions across much of the Corn Belt since late June supported crop development and increased yield prospects.  US corn ending stocks were projected at 28.8 million metric tonnes, a 7.6 million metric tonnes increase from July.  The 2008/2009 ethanol usage estimate was increased from last month by 3.8 million metric tonnes based on lower corn prices and stronger-than-expected production.  World corn production for 2008/2009 was projected at 789.6 million metric tonnes and world ending stocks at 112.4 million metric tonnes.

US soybean production for 2008/2009 was projected at 80.9 million metric tonnes, down from the July forecast of 81.6 million metric tonnes.  Although the new forecast was lower than June prediction, it was higher than the 2007 production of 70.3 million metric tonnes.  Area for harvest in the United States was forecast at 73.3 million acres, up 2.0% from June and up 17.0% from 2007.  If realised, the 2008 US soybean production could be the fourth largest production on record.  Ending stocks were down from July to 3.7 million metric tonnes because of reduced supplies.  Soybean crush decreased by 0.4 million metric tonnes as a result of lower domestic use and exports of soybean meal.  World soybean production for 2008/2009 was projected at 237.4 million metric tonnes and ending stocks were 49.3 million metric tonnes.

US wheat production was projected at 67.0 million metric tonnes, nearly unchanged from July, but up 19.0% from August 2007.  The US yield was forecast at 43.5 bushels per acre, 3.0 bushels per acre above last year.  Ending stocks were at 15.6 million metric tonnes, a 1.0 million tonne increase since July.  World 2008/2009 wheat production was increased by 6.5 million metric tonnes to a record 670.8 million metric tonnes.  Higher production in the EU-27, India, Russia, Ukraine and the United States were responsible for the rise.  This increase in production boosted projected 2008/2009 world ending stocks by 3.1 million metric tonnes to 136.2 million metric tonnes.

Amendments to seeds regulation

The Canadian Food Inspection Agency (CFIA) announced amendments to the seed regulations that removed the kernel visual distinguishability (KVD) requirements when importing wheat seed into western Canada.  According to the Government of Canada, this decision will provide farmers more choice in the varieties of wheat they can grow and timely access to innovative, value added and feed markets.  The amendments were published on August 6th 2008 in the Canada Gazette, Part II.

Because KVD was removed, the Canadian grain industry introduced on August 1st, 2008 a declaration for western Canadian wheat.  Annually, at every elevator where producers deliver wheat, they will have to complete the declaration of eligibility for the class form confirming that the wheat delivered is eligible for a specific western Canadian wheat class.

Prices

The Canadian Wheat Board (CWB) announced the 2008/2009 initial payments for the various grades of wheat, durum and barley (see table 23).  The initial payments represent a portion of the returns farmers can expect from the sale of their grain over the whole new crop year.  The payments were effective August 1st, 2008 for deliveries into the 2008/2009 pool accounts.

The Canadian Wheat Board (CWB) released its August 2008 Pool Return Outlook (PRO) on August 28th. Wheat values increased $10 to $22 per tonne from July’s PRO, with the exception of Canada Western Feed which remained unchanged.  Milling durum wheat values were $10 a tonne lower.  Designated barley was up by $3 per tonne from the August 7th mid-month PRO.  Feed barley dropped by $2 per tonne.

Also, on July 31st, 2008, CWB announced that western Canadian farmers would receive about $7.0 billion from grain marketed through the Board in 2007/2008, a 57.0% increase from 2006/2007 and the double of 2005/2006.   According to CWB president and CEO, Ian White, a pooled approach to selling in this year’s high-price international grain environment was responsible for the increase.

In July, corn futures’ prices started to decline and kept following that downtrend through the first weeks of August.  Corn futures’ prices reached a seven-month low on August 12th, a 36.0% drop from the record high in June.  A plunge in crude oil prices, a stronger US dollar and improved weather conditions in the US Corn Belt area were responsible for the decrease.  At mid-month, corn futures reversed direction supported by higher crude and precious metal prices, a weaker American dollar and speculation over how much rain the remnants of tropical storm Fay would leave behind.  By the end of the month, prices declined again.  A sharp jump in the value of the US dollar and weaker price for crude oil was weighing on corn trade.

Soybean futures’ prices followed the same pattern as corn throughout August, influenced by crude oil prices and US dollar fluctuations.  By the end of the month though, soybean futures’ prices increased and almost gained back what they had lost during the month.  This surge was due to weather concerns over the dryness in soybean growing areas and speculation about an early killing frost.

In August, wheat futures’ prices made some progress in comparison to June’s drop.  For most of the month, wheat prices increased because of a weaker American dollar, stronger crude oil prices and spillover from gains in other markets.  Towards the end of the month, a stronger US dollar and weakness in corn futures contributed to wheat prices decline.

Winnipeg canola futures’ prices continued their decline which started in mid-July, falling on August 6th to their lowest level since April following the decline in the soybean complex.  Starting the second week of August, canola followed the price uptrend established by the Chicago Board of Trade (CBOT) soybean complex.  By the end of the August, a favourable Prairie crop outlook and large canola supplies in Western Canada continued to put downward pressure on canola futures.

Field pea prices eased over the month as new crop supplies were harvested in Canada and Europe. Expectations of above-average yields in Canada also weighed on the market.  Potential quality concerns rose with late season rains in Saskatchewan.  This could help to slow some of the downward movement in prices from increased new crop supplies.  Markets continued to look to ongoing tender activity from India to support higher prices.  However, prices will need to remain competitive with other, cheaper food choices in order to use up the extra supply.

New crop supplies of red lentils pushed prices lower while green lentil prices remained unchanged during the month.  Expected above average yield and increased production due to higher acreage continued to put downward pressure on the market.  Quality concerns, especially for green lentils, could help to support prices as the harvest progresses.

International chickpea markets remained quiet throughout the month in limited trading interest.  Markets continued to wait for the North American harvest to start and for new crop supplies to become available. Even though seeding of India’s summer monsoon, or kharif season, pulses progressed, estimated production remained below the previous year’s production because of lower acres.  The Indian government will be pressured to maintain imports in an attempt to slow food price inflation.

Oilseed sunflower prices continued to decline in sympathy with other oilseed and oilseed product prices. Confectionary sunflower prices remained unchanged under a tight supply situation for the coming market season.  Crops in both Canada and the United States were delayed in terms of development, but were still looking good.  Sunflowers are more frost tolerant than other crops so late season frosts will not be as great a factor.