Highlights

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Situation report
November 2008

US and World Supply-Demand

The US Department of Agriculture (USDA) left its November projection unchanged for 2008 US wheat production at 68.0 million metric tonnes.  The 2008/2009 projected ending stocks were 16.4 million metric tonnes, a rise of 0.05 million metric tonnes over last month.  Global wheat production for the 2008/2009 marketing year was forecast at a record 682.4 million metric tonnes, up 2.2 million metric tonnes from October.  The increase was the result of higher production in the EU-27 and Russia.

The 2008 US soybean production was forecast lower at 79.5 million metric tonnes based on lower yields.  The 2008/2009 domestic use for crushing was projected lower while exports remained unchanged. USDA estimated world soybean production down in November as a result of lower production in Brazil and in the United States. The 2008/2008 ending stocks estimate were a little lower than in October.

US corn production was forecast down 0.3 million metric tonnes from last month at 305.3 million metric tonnes.  US corn ending stock projections rose due to lower expected exports.

Food and Agriculture Organisation Food Outlook

In November, the United Nation’s (UN) agency the Food and Agriculture Organisation (FAO) has released its Food Outlook Global Market Analysis.  According to the FAO, 2008 world cereal production was a record 2,242.0 million metric tonnes (including rice and milled terms), 5.3% up from 2007. The 2008 world cereal utilization was anticipated to rise by 3.3% from last year to 2,197.0 million metric tonnes with increases in food, feed and industrial use.  The latest FAO forecast for world wheat production in 2008 will be higher then last year. The increase was the result of higher production forecasts for Europe and North America.  World wheat stocks by the close of the 2009 crop seasons were forecast to be up from 2008 when they opened at 30 year lows.

According to the FAO, after last’s season exceptional decline, world oilseed production in 2008/2009 was forecast at 430.5 million metric tonnes, up 7.0% from last season and marked a new historic record.   Soybean production was forecast to increase from last year. 

Southern Hemisphere 2008-209 Wheat Harvest

Australia’s 2008/2009 wheat harvest was more than two weeks behind normal in some parts of the country because of heavy rain.  After suffering severe drought in southeastern Australia, which forced farmers to harvest much of their wheat crop for hay, Australian crops were hit by storms and flash floods.  According to the USDA, Australian production for 2008/2009 was projected at 20.0 million metric tonnes.  Still, with this year’s bad weather conditions, this projection would be a 53.4% jump from 2007/2008. New South Wales in 2007/2008 had a lower wheat production due to extremely poor seasonal conditions.

Argentina’s wheat crop potential continued to decline under hot and dry weather conditions to 11.0 million metric tonnes according to the US Department of Agriculture.  Last year Argentinean wheat production was 16.3 million metric tonnes.

Ethanol Industry

FAO, in its latest Food Outlook Global Market Analysis, expected a rise in 20085/2009 biofuel production.  Most of the increase was expected to be driven by larger corn use for the ethanol sector in the United States, which in 2008/2009 was forecast to reach 101.0 million metric tonnes, up 33.0% from 2007/2008. 

While FAO was forecasting an increase in ethanol production in the USA for 2008/2009, some American ethanol companies were suffering from the economic turmoil.  VeraSun Energy, one of the largest American ethanol producers, filed a voluntary petition for relief under chapter 11 of the US Bankruptcy Code on October 31st.  The company underwent significant losses in the third quarter of 2008 from a spike in its corn costs, reflecting in part costs attributable to its corn supply and hedging arrangement.  Worsening capital market conditions and a tightening of trade credit resulted in severe constraints on the company’s liquidity position.  In mid-November VeraSun had stop processing corn at some ethanol plants.  Late November, the company received a non-binding, unsolicited interest to acquire substantially all of its assets.  The third party identity had not been disclosed for confidentiality reasons. 

On the other hand, there seems to be an ethanol plant boom in eastern Ontario.  There could be four ethanol plants operating east of Toronto in 2009.  In November, there were three proposed ethanol plants, FarmTech Energy in Oshawa, Upper Canada Ethanol in Napanee and Kawartha Ethanol in Havelock.  Late in November, Greenfield Ethanol received its first ceremonial corn delivery to its new Johnstown plant in Eastern Ontario, scheduled to open in December 2008.  The plant will require 0.5 million metric tonnes of corn per year. Of that amount, about one-third will be returned to farmers as feed in the form of dried distillers' grains.

Canadian Grain Movement Declined through Churchill Port

The Canadian Wheat Board (CWB) shipped 424,000 metric tonnes of Western Canadian wheat through the Port of Churchill Manitoba during the 2008 shipping season, a decline of 32.0% when compared to 2007.  In total, 15 ocean vessels loaded grain in Churchill between August 9 and October 20 this year.  Last year’s price spike contributed to an extraordinary shipping season in 2007 through Churchill with 621,000 metric tonnes.  According to the CWB the annual grain volume through the northern Manitoba port tends to hover around 400,000 metric tonnes.

Prices

In November, volatility in financial markets was mirrored in commodity markets.  Back in September, Wall Street had been shaken by the collapse of major investment banks. Even after the US government 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.  In November, crude oil plunged a near $US50 a barrel, a three and half year low, and the Dow Jones Industrial Average dropped to its lowest level in over five years.  The US Federal Reserve was expected to cut its key interest rate to 0.5% in December 2008, down to 1.0%.  European and Asian markets also fell sharply on fears of a worsening world economy. Those volatile economic conditions created high levels of instability that sustained prices declines in agricultural commodities. 

The Canadian Wheat Board (CWB) released its November 2008/2009 Pool Return Outlook (PRO) on November 20th.  Milling values increased from the October PRO by $5 a metric tonne, while durum values increased by $10.  Feed barley and designated barley were both down $3.  The weakened Canadian dollar and the drop in ocean freight rates helped support the PRO despite markets uncertainty and increasing world wheat production. 

US corn futures’ prices continued their downward trend, which started in July, as they fell to their lowest 2008 level in November.   A drop in the US stock market, lower crude oil prices, a stronger US dollar and problems in the American ethanol industry weighed on the market.  Despite the bearish trend, corn futures were showing some signs of stability after the September/October hard fall.

Declining outside markets remained a negative factor for soybean futures’ prices. Downward pressure also came from current large palm oil stocks in Malaysia and Indonesia and worldwide, the weakness in crude mineral oils and a stronger US dollar.  However, the decrease in soybean prices slowed down, supported by tight US supply coupled with solid export demand and a dry start to the growing season in South America.

Record global wheat supplies and the US winter wheat crop getting off to a good start pressured down wheat futures’ prices in November.  Furthermore, strength in the US dollar and weakness in crude oil added downward pressure to the grains markets. 

Declining outside markets and the forecast of a record large canola crop remained negative factors for Winnipeg canola futures’ prices. Canola prices were supported though by good demand from domestic processors and a weaker Canadian dollar. 

Special crop prices generally remained unchanged in light trading over the past month.  Growers stayed out of the market; instead, choosing to wait for any potential winter and spring price rallies.  Buyers traded at hand-to-mouth levels in hopes that prices continue to move downward.  Transportation delays, credit problems, and defaults on contracts also made processors and exporters reluctant to seek sales.  This situation mainly affected field peas, but could also be seen in canary seed and lentil markets to some extent.

In comparison to other commodities, lentil prices remained high at the upper end of their historic range as the short term needs of the market were slightly higher than grower selling.  Prices began to weaken as end users continued to pull out of the market.  Market conditions suggested a demand rationing towards lower priced alternative products.  Red lentil markets were supported by news from Australia that the country’s crop will end up smaller than first projected.  Untimely weather events in key growing areas devastated crop yields.  However, Australia entered into the market in recent weeks in an effort to maximize new crop sales, creating volatility within domestic markets.  Argentina entered into the market as a buyer recently because of a crop disaster this year.  The country will need to import lentils for the first half of the new year to meet domestic needs.  This helped to provide some encouragement for lentil markets, at least in the medium term.

Light trading activity resulted in chickpea markets remaining generally unchanged throughout the month.  North American growers were not interested in selling so exporters remained out of the market.  Kabuli chickpea traders continued to watch the progression of India’s rabi season.  Production in India was expected to be higher than in previous years.  Because India is an exporter of Kabuli chickpeas, nearly all production is sold into the export market.  A large harvest could encourage earlier selling to avoid competition with Mexico’s harvest, thus setting the tone for the first half of 2009.

Canadian canary seed markets were affected by uncertainty in export markets, problems with contracts caused by problems with some shippers and buyers and transportation delays.  As a result, markets moved lower through the month.

Oil-type sunflower seed prices continued to follow the oilseed complex.  Increases in world canola and sunflower oil production combined with a slowing world economy put downward pressure on demand to push markets lower.