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Situation report
October 2008

Canadian crop production estimated higher

Statistics Canada surveyed approximately 15,000 farmers at mid-harvest. Production of most crops was expected to increase although farmers had been concerned about weather-related challenges earlier in the growing season. The harvest started slowly in some western regions due to cool, wet weather but later improved.

Farmers reported they expected to produce 10.9 million metric tonnes of canola, mainly because of above-average yields. The production estimate exceeded the 2007 record of 9.5 million metric tonnes and topped the pre-harvest July estimate by 495,000 metric tonnes. Farmers expected to set new production records in all three Prairie Provinces where most of the Canadian canola is grown. Strong domestic crush and biodiesel demand combined with good prices had encouraged higher seeded area in the spring.

Canadian farmers harvested 22.2 million metric tonnes of wheat excluding durum, a 35.6% increase over 2007 and the highest level since 1999. Harvested areas and yields approximated the 2005 records.

Prairie durum production rose 37.7% to 5.1 million metric tonnes, up 1.4 million metric tonnes from 2007.  Harvested areas returned to more normal levels after two years of lower-than-average seedings. Yields increased about three bushels per acre over 2007 but were still below the five-year average.

Canadian 2008 soybean production reached 3.2 million metric tonnes, close to the record output of 3.5 million metric tonnes in 2006. The provinces of Québec and Ontario produce approximately 90% of the Canadian soybean production. Québec soybean production was 615,000 metric tonnes, a 30.3% increase from 2007, the result of record harvested area. The last provincial record of 535,000 metric tonnes was set in 2006. In Ontario, farmers also expected an increase in soybean production to 2.3 million metric tonnes, up 12.5% from 2007. Even though there was a decrease in soybean seeded area, the yield was expected to rise by 7.8 bushels per acre from last year’s low level to 40.8 bushels per acre.

Production of both grain corn and oats fell because of reduced harvested areas. Grain corn production declined 15.1% to 9.9 million metric tonnes. In Québec, farmers had increased soybean area at the expense of corn.

US and World supply-demand

The U.S. Department of Agriculture (USDA) increased its October projection for 2008 US wheat production by 1.0 million metric tonnes to 68.0 million metric tonnes from the September projection because of higher yields. Ending stocks were 16.3 million metric tonnes, a rise of 0.7 million metric tonnes over last month. Global wheat production for 2008/2009 marketing year was forecast at a record 680.2 million metric tonnes, up 3.9 million metric tonnes from September. Higher production in Canada, Russia, Ukraine and the United States offset reductions in Argentina and Australia. World ending stocks were projected at 144.4 million metric tonnes, 24.5 million metric tonnes higher than in 2007/2008.

Despite USDA projections of increased US 2008 soybean production, 2008/2009 supplies are down from last year because of a low carry-in. However, 2008/2009 domestic use for crushing and exports are also projected lower. Ending stocks are therefore expected to approximate the stock level at the end of 2007/2008. Weaker soybean meal demand has been reducing the crush. USDA estimated world soybean production up in October as a result of higher production in the United States, Canada and the EU-27.

US corn production was forecast down 1.0 million metric tonnes from last month at 305.6 million metric tonnes. US 2008/2009 domestic use for ethanol was estimated at 101.6 million metric tonnes, 2.5 million metric tonnes less than the September forecast because of expectations of lower gasoline consumption.

Prices

In October financial markets were still in turmoil and agricultural commodity prices were still quite volatile. In September Wall Street had been shaken by the collapse of major investment banks while a first attempt by American government to bail out the financial sector was turned down by the House of Representatives. This was a surprising turn of events that sent the stock market into a tailspin. However, in early October, the US government finally passed a massive aid package with the main objective of preventing credit from drying up and causing a meltdown of the US economy. Markets stayed pessimistic with commodity stocks declining and oil prices starting to spiral down. The Canadian dollar plunged more than two cents to a three-year low below 80 cents US. During October, the Bank of Canada decreased the Canadian interest rate, at first by 50 and then by 25 basis points to end up at 2.25%. Those economic conditions created high levels of instability that accelerated the price decline in agricultural commodities. Commodity prices were also pressured down by forecasts of abundant supplies from better than expected crop yields.

The Canadian Wheat Board (CWB) released its October 2008/2009 Pool Return Outlook (PRO) on October 23^rd. Because of the financial instability and the record world wheat crop, milling wheat values decreased $24 per tonne from the September PRO, while milling durum were down $37. Feed barley prices declined $5 while designated barley prices remained unchanged from the mid-October PRO.

US corn futures’ prices continued their downward trend, which started in July, as they fell to their lowest level of 2008 in October.  After huge losses, in September and early October, the corn price decline slowed, supported by the stabilization of other markets. Corn futures’ prices were not only affected by nervousness of financial markets but also by stronger than expected yields for the 2008 US harvest.

Weak outside markets remained a negative factor for soybean futures’ prices. Downward pressure also came from rising oilseed production and large palm oil stocks.  By the end of October the decrease in soybean prices slowed down, supported by an interrupted US harvest and uncertain yields.

In October, wheat futures’ prices reached their lowest level since August 2007. Wheat markets continued to experience some downward pressure from the economic instability but also from a forecast record global wheat crop. With larger global supplies, wheat began to be used more in livestock rations and its price trended closely with the price of corn.

Winnipeg canola futures’ prices continued a decline that started in mid-July. Canola was pressured down by outside markets but mainly by forecast of a record large canola crop. Canola prices did not decline as much as the soybean complex because of a weaker Canadian dollar and slow farmer pricing.

International chickpea markets remained unchanged throughout the month in light trading interest. Harvest continued to progress in both Canada and the United States. At the same time, Mexico began to prepare for the planting of next year’s crop. Markets were left to suppliers in Canada and the United States, helping to reduce any harvest selling pressure on prices.

Canadian dry pea markets started the month generally unchanged as harvest selling pressure closely matched short term needs of the market. US markets continued to be supported by ongoing government demand through food aid tenders. European markets declined as a better than expected harvest in France was completed, although overall output was still down. The amount of peas available for sale into the human consumption market remained relatively low, leaving exporters to turn to Canada to meet demand. Markets weakened near the end of the month as stock and commodity markets collapsed.

Feed pea prices continued to experience some downward pressure over the month as a result of a general weakness in livestock feed ingredient markets. A drop off in demand and increased supply also helped to push prices lower. Growers were still able to secure higher prices from the human consumption market. However, the pace of exports was slower this year. With the larger supply, this could result in some dry peas moving back into the domestic feed market.

Declines in the Canadian dollar supported grower bids and allowed red and green lentils to continue trading at higher than normal levels. Markets in the United States continued to be supported by United States Department of Agriculture purchases to meet food aid commitments.

Lower world oilseed prices and increased US production put downward pressure on oil-type sunflower prices. Heavy rains in Russia and Ukraine slowed harvest and caused some damage. Dry conditions in South America slowed sunflower plantings. These two factors combined to add some support back to the market. Confectionary sunflower prices also decreased as buyers withdrew from the market.

Canadian canary seed markets moved lower throughout the month as grower selling was greater than commercial buying. Mustard prices remained relatively unchanged in the face of continued tight supplies.