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Situation report
February 2009

December 2008 Canadian grain stocks

On December 31st, total Canadian stocks of all major grains and oilseeds were higher than the previous year, with records made for canola, dry field peas and oats.  Farm stock data were obtained from a Statistics Canada survey of farmers while commercial stock data were obtained from the Canadian Grain Commission and from Statistics Canada surveys of commercial enterprises.

Stocks of wheat, excluding durum rose back to more normal levels in December 2008 after the 2008/2009 crop year began with extremely low farm stocks.  A good crop and stable exports allowed stocks to rebuild. Stocks of durum wheat at December 31, 2008 were the highest since December 2005 because of a large 2008 crop and reduced export demand from the European Union and North Africa.  However, the Canadian Wheat Board (CWB) planned to export more durum wheat in the latter part of the 2008/2009 crop year to bring total exports to 3.35 million metric tonnes, up from 3.17 million tonnes in 2007/2008.

In December 2008, barley stocks rose to the highest level since December 2005. There was large world and Canadian production in 2008 which pressured prices lower.  The CWB targeted exports of 1.6 million metric tonnes in 2008/2009, mostly malting barley.  In 2007/2008, exports had been substantially higher as the possibility of the removal of the CWB monopoly on barley export sales caused private grain traders to sell large volumes on the open market.

Stocks of oats rose only marginally from December a year-earlier.  While supplies in 2008/2009 were similar to the previous year, exports were lower because of reduced US demand.

Corn stocks declined from December 2007/2008 due to lower on-farm stocks; however, overall stocks were still large and the second highest in five years.  Most of the drop occurred in Quebec where 2008 production fell about one million tonnes.

Canola stocks were a record 9.4 million tonnes despite record crushings and exports because of record 2008 production. Flaxseed stocks were up marginally from December 2007 on slightly lower exports. Soybean stocks returned to more-normal levels in December 2008 after low 2007 production reduced stocks in the 2007/2008 crop year.

Stocks of dry peas were a record, mainly because of massive 2008 production.  A decline in exports also contributed to the rise. The 2007/2008 crop year ended with only pipeline supplies of lentils.  Despite higher production in 2008, December 2008 stocks of lentils were still low, approximating the year-earlier level. A substantial drop in 2008 chickpea production reduced supplies and caused a drop in December stocks.  However, stocks at 125, 000 metric tonnes, were still historically large.

Mustard stocks at December 31, 2008 declined for the third year in a row, making the availability of mustard tight for the rest of the crop year. Although canary seed supplies fell somewhat in 2008/2009, lower exports helped to maintain stock levels. Lower exports of sunflower seeds in the first five months of the year kept December 2008 stocks about the same as December 2007 despite lower supplies.

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US and world supply-demand

Although overall world wheat production projections were relatively unchanged in the US Department of Agriculture’s (USDA) monthly report, production for Argentina was reduced significantly because of drought-reduced yields. Argentinean farmers went on strike and halted grain sales toward the end of the month as interest rates rose. World food consumption declined because of the lower Argentinean supplies and food use reductions in Morocco, Nigeria, Venezuela and Vietnam.  This resulted in a rise of 1.6 million metric tonnes in the 2008/2009 global wheat ending stock projection to 150 million tonnes, the highest level since 2004/2005.  US supply-demand projections were unchanged.

USDA reduced world corn production, mainly because of dryness in South America.   Both imports and exports were reduced as was global corn feeding.  As a result, global ending stocks were expected to rise 0.6 million metric tonnes compared to the January projections.  This is the second year of increased corn stocks. No changes were reported to the US corn balance sheet this month.

World oilseed ending stocks for 2008/2009 were projected slightly lower than those of 2007/2008 and well below the 2006/2007 level.   The declines were reported to be mainly due to lower soybean stocks in the United States, Brazil and Argentina.  In the United States, soybean stocks declined because of higher exports and despite weak crush demand.   In South America production and supplies dropped as crop potential was reduced by hot, dry weather. 

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2009/2010 Outlook

Late in February, the CWB projected a drop in 2009/2010 world wheat production combined with a substantial drop in animal feed use which could result in a build-up of stocks.   Tight credit markets are expected to result in hand-to-mouth buying by importers. Global durum wheat production was also expected to decline.  A decline in stocks is anticipated to support prices later in the 2009/2010 marketing year.  Prices were also expected to be influenced by weather and crop quality.

The CWB forecasted a reduction in world barley production to a level still above the long-term average as a result of the poor global economy which reduced feed demand.  Prices are expected to be pressured down when the harvest begins in the European Union and the Black Sea region. Increased world supplies of malting barley are expected to reduce 2009/2010 prices.

Analysts at the Grain World conference in Winnipeg indicated that large world oilseed supplies combined with anticipated large 2009 crops and a lack of economic confidence would pressure canola and US soybean markets in the first half of 2009.

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Canada Grain Act modernization

The federal government re-introduced Bill C-13 which had earlier died on the order paper after second reading due to a federal election.  This Bill contains suggested changes to the Canada Grain Act which gives the Canadian Grain Commission (CGC) its mandate and specifies grain handling regulations.  A proposed mandate clarification will give the Commission two main functions: 1) Establish and maintain standards of quality for Canadian grain and regulate grain handling to ensure a dependable commodity for domestic and export markets and 2) Protect the interests of grain producers with respect to deliveries to elevators and grain dealers, access to binding CGC determination of grade and dockage and allocation of producer railway cars.

Inward inspection and weighing to terminal or transfer elevators would no longer be mandatory although shippers may request weighing and inspection by private service providers.  CGC would not provide this service but would be available for binding arbitration in the case of disputes.   There would no longer be CGC registration or cancellation of grain receipts. 

Under the proposed act, there would no longer be transfer elevators.  All elevators previously licensed as transfer elevators would be licensed as terminal elevators.

Also, there would be no payment security for producers administered by the Commission. Therefore, providing security will no longer be a requirement of being licensed by CGC.

The new act would provide CGC with the authority to make regulations requiring declarations in grain transactions.  CGC would also have the authority to impose fines for minor violations of the Act.  Penalties for serious violations of the Canada Grain Act would be increased.

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Prices

Markets continued their volatility during February. The bearish world economy and weather concerns dominated trading and mostly pressured prices lower.

Corn futures’ prices were down over the month on weak demand and rains in South America which were expected to improve the previously dry crop.  The market showed some strength prior to the mid-month USDA report but then retreated.

Soybean futures’ prices fell on weak crude oil prices and a firmer US dollar.  However, the biggest market mover was the rain in South America.  Losses were somewhat limited by strong export demand and the strike in Argentina.  Soybean products were down in line with soybeans on worries that the global market uncertainty might reduce export demand.

Wheat futures’ prices dropped on pressure from large world supplies, a stronger US dollar, weak crude oil prices and higher ocean freight rates.  Spillover from corn and soybeans also pressured wheat prices lower. There were concerns about dry US and Chinese winter wheat crops.

US oat futures’ prices fell further as the large Canadian supplies weighed on markets.   Long liquidation in Chicago prompted talk of possible lower seedings this spring.  Barley futures’ markets suffered from the weak US corn futures’ prices and flat demand.

Canola markets felt the effects of the weak US markets.  Prices rallied to mid-month but then declined with farmer sales.  Strong export demand from China and a lower Canadian dollar moderated losses.

The CWB announced increases to the 2008/2009 initial payments for wheat, durum wheat and designated barley. The increases were $30 a tonne for wheat, $25.80 for durum and $39 for designated barley (see table 23). Prices were down from the previous year for all Board grains in the CWB’s first 2009/2010 Pool Return Outlook.  The Board expects lower North American seedings of spring wheat and durum wheat this spring.

Edible pea prices moved up slightly over the past month as demand from processors and exporters improved to fill export sales programs.  However, a large supply of Canadian peas left to market this year will limit the upside movement of prices.  The supply is likely too large for export markets to absorb given the current depressed global economic climate.  Higher pea prices also discouraged buying by feed markets, meaning that this market would not be available to use the extra supply.  As a result, slow export demand and large supplies continued to plague edible pea markets in the long term.

Lentil markets continued to be volatile throughout the month as the number of willing sellers remained out of alignment with the market’s short term needs.  This was most obvious in red lentil markets.  Movement was strong in the early part of the year, leaving supply short for the remainder of the marketing year.  Markets maintained a watch on crop prospects in Turkey and on the potential for India to relax export bans at the start of 2009.

Canary seed markets saw some renewed interest during the past month as the immediate needs of the market moved ahead of available product from growers.  Prices edged higher over the month as a result. 

Sunflower markets were supported by news that the Argentine and South African sunflower crops were suffering due to drought.  The markets continued to monitor the Black Sea region, which leads world sunflower production.  A record crop last year had pushed sunflower oil prices equal to and even below soybean levels.  Credit problems impacted the region hard for the purchase of inputs such as seed, fertilizer and chemicals.  Therefore, production may be impacted more from the lack of inputs than from a reduction in seeded acres.