Highlights

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Situation report
December 2008

Canadian production estimates rise

Statistics Canada surveyed approximately 29,000 farmers from October 24 to November 17, 2008 for the final 2008 crop report. Canadian oilseed and wheat production increased significantly over 2007, while production of grain corn and oats declined. Canadian farmers posted the highest yields ever recorded for spring wheat, barley, canola and oats. 

After favourable weather boosted yields, Prairie farmers produced a record 12.5 million metric tonnes of canola. This was a 32.8% increase from last year, resulting from record yields and harvested area. In each of the three Prairie Provinces new records were set for production and harvested area. Record yields were reported in Manitoba and Saskatchewan. 

Prairie farmers also grew a record field pea crop of 3.6 million metric tonnes, a 21.7% increase from 2007. The increase was the result of above-average yields and harvested areas.  Production in all Prairie Provinces increased, with record production in Saskatchewan and Alberta. 

All wheat output increased nearly 43% to 28.6 million metric tonnes, the result of increased harvested areas and an average yield of 42.4 bushels an acre. This was one of the largest crops in recent memory but was still shy of the record 32.1 million tonnes produced in 1990.  There was less winter wheat but slightly more fall rye seeded in the fall of 2008 than in the fall of 2007.

Of the spring wheat produced in Western Canada in 2008, approximately 86% was Hard red spring wheat, 7% was Prairie spring wheat, 4% was Soft white spring wheat, 2% was Canadian western extra-strong spring wheat and 2% was Other spring wheat.   

Durum wheat production rose to 5.5 million metric tonnes in 2008 because of excellent yields and the largest harvested areas in many years.  Area seeded to durum wheat declined significantly in 2006 but has been increasing over the past two years to more normal levels.

Total soybean production rose 23.7% to 3.3 million metric tonnes, just short of the 2006 record production of 3.5 million metric tonnes. Quebec production increased 27.1% with lower yields than in 2007 but with a harvested area that was 30.5% larger.  In Ontario, production increased by 23.8% with higher yields but a lower harvested area. Almost 48% of the Quebec crop and 58% of the Ontario crop was genetically modified.

Corn grain production decreased from the 2007 record level. Ontario farmers produced nearly 6.9 million metric tonnes, down 127,000 metric tonnes from last year but still a very large crop due to good yields. In Quebec, corn output dropped 23% in 2008 as both harvested area and yields declined. Approximately 56% of the corn in Ontario and 58% of the corn in Quebec was genetically modified.

US and world supply-demand

The US Department of Agriculture (USDA) left its December projection unchanged for 2008 US wheat production at 68.0 million metric tonnes. The 2008/2009 projected ending stocks were 16.9 million metric tonnes, a rise of 0.5 million metric tonnes over last month. Higher imports and lower food use contributed to the ending stocks increase. Global wheat production for the 2008/2009 marketing year was forecast at a record 684.0 million metric tonnes, up 1.6 million metric tonnes from November. The increase was the result of higher production in Canada, Brazil, the EU-27 and Serbia. 

The 2008 US soybean production and ending stocks projection remained unchanged from last month. However, the 2008/2009 domestic use for crushing was projected lower while exports were projected on the higher side. The USDA estimated world soybean production down in December as a result of lower production in Brazil. The 2008/2008 ending stocks estimate were a little higher than in November. 

The 2008 US corn production projections remained unchanged from last month. US corn ending stock projections rose due to lower expected exports and ethanol use.  Ethanol use was projected 7.6 million metric tonnes lower from the November forecast. Financial problems for ethanol producers reduced plant capacity utilisation for existing plants, delaying plant openings for facilities still under construction. For instance, VeraSun Energy, one of the largest American ethanol producers, filed a voluntary petition for relief under chapter 11 of the US Bankruptcy Code at the end of October.

Twin Rivers Technologies crushing plant in Quebec

Twin River Technologies (TRT) a branch of the Malaysian governmental agency Felda will open a canola and soybean crushing plant in the fall of 2009, the first major one in the province of Quebec. TRT through ‘‘Entreprise de transformation de graines oléagineuses du Québec’’ (ETGO) has invested $153 million to build its plant in the Bécancours industrial park.  The Government of Quebec has announced up to $20 million in repayable financial assistance to TRT.  The company will refine canola, soybean and palm oil at the facility. The oils will be used in the food processing industry while protein meal will be used in the animal feed industry. The new plant will process approximately one million metric tonnes of oilseeds (600,000 metric tonnes of canola and 400,000 million metric tonnes of soybean). It is expected to create 90 full time jobs and generate annual sales of $450 million.  The plant is also expected to result in increased interest in seeding canola in eastern Canada.

Canadian ethanol Industry

In December, farmer-owned Integrated Grain Processors Co-operative (IGPC) officially opened its new ethanol plant in Aylmer Ontario. The new plant will produce 150 million litres of ethanol and 120,000 metric tonnes of dried distillers grain with solubles (DDGS) a co-product used in livestock feed. With this $140 million new plant, Canada will be producing over a billion litres of ethanol a year.

Parrish and Heimbecker to buy flour miller Dover

Early December, Parrish and Heimbecker, a Winnipeg grain and agri-food firm, announced a deal to buy up to 75% of flour miller Dover Industries that it does not already own. The agreement would give Dover shareholders $19.95 in cash per share, a premium of 39% over Dover’s closing price on the Toronto Stock Exchange on December 4th, 2008.  Dover Industries operates flour mills in Ontario, Nova Scotia, Saskatchewan and Québec.  

CWB announced final payments for 2007/2008

The Canadian Wheat Board (CWB) issued on Monday December 15th, its combined interim and final payments to farmers for the wheat, durum, feed barley, and designated barley they delivered to the CWB during the 2007-2008 crop year.  These payments represent the balance of the money owing to farmers after their grain has been marketed through the CWB, and after operating costs have been deducted.

Prices

In December financial markets were still in turmoil and commodity prices were still quite volatile. Back in September, Wall Street had been shaken by the collapse of major investment banks. In October, 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.  Mid-December the White House said the administration would consider using part of the Treasury’s $700 billion bailout package for financial institutions to keep the US Big 3 automakers afloat after a bailout legislation failed in the Senate.  However, US President George W. Bush said that an announcement on a rescue for the embattled sector was not imminent. Throughout December commodity markets stayed pessimistic.  After hitting a record high above $US147 in July, crude oil plunged 70% to $US40.50 in early December. Oil prices rebounded from four-year lows after OPEC’s president said the oil cartel could announce a large reduction in oil production.  The US Federal Reserve lowered its benchmark interest rate to a range of 0 to 0.25%, the lowest since the Fed started publishing the funds target in 1990.  The Bank of Canada lowered its policy interest rate by a total of 75 basis points in October and by an additional 75 basis point in December to 1.5%. Those volatile economic conditions created high levels of instability that sustained prices fluctuations in agricultural commodities. 

In December, corn futures’ prices were volatile but their descent seemed to have slowed down and even stabilized by mid-month. Early December, corn prices were hit by another low following the crude oil price plunge. In the same week prices bounced back on a surge in equities, higher crude oil prices and a weaker US dollar. 

Soybean futures’ prices were also volatile throughout December. Early December soybean prices fell to new contract lows but prices rose again at mid-month based on stronger crude oil prices.

Declining outside markets such as lower crude oil prices remained a negative factor for wheat futures’ prices. Throughout December wheat prices bounced back supported by a weaker U.S. dollar which sparked some foreign interest in purchasing large quantities of US wheat.

Weak outside markets and the announcement of a record large Canadian canola crop estimate remained negative factors for Winnipeg canola futures’ prices. By mid-December canola prices drew some support from energy markets, stronger Chicago soybean complex futures and purchases by China. 

The ongoing global economic problems continued to put pressure on special crop prices and movement throughout the month. Lentil prices moved off their highs as credit problems, transportation issues, and defaults on contracts continued to plague the markets.  At the same time, producers held off selling in hopes that prices would recover during the winter/spring shipping period.

International chickpea markets remained quiet as traders continued to wait for the Indian rabi season pulse crop to develop and Mexican exporters remained out of the market. Chickpea markets had avoided many of the problems felt by other pulse and birdseed traders but still felt some effects of the global economic slowdown.

Declining demand held international field pea prices lower throughout the month. Ample Canadian pea supply combined with soft demand from many markets, especially India, to continue the downward pressure on prices.  Many field pea exporters found themselves trying to re-sell shipments that buyers had defaulted on which pressured prices lower.

Oil-type sunflower markets continued to follow petroleum and soybean oil futures down.  A record Canadian canola crop, good rainfall in Argentina and a normal weakening of commodities markets leading into the holiday season also pressured prices lower.  Food companies started to blend cheaper oils or operate on an as-needed basis as food commodity prices tracked lower.  As a result, demand for higher priced sunflower oil slowed.  The only support the vegetable oil market may receive in the near future is the potentially smaller palm oil supply as the trees go into a normal biological production slowdown in the coming year.

Throughout the fall season, mustard prices had held relatively stable but have now started to feel the downward pull from other markets. Prices have moved back to historical averages despite tight supply/demand fundamentals.  The market remained quiet as buyers covered their needs in the short-term but remained cautious for the long-term in face of the global economic uncertainties.