Situation Report – May 2009

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March 31 Canadian grain stocks

Total stocks of all major grains and oilseeds on March 31, 2009 were higher compared to March 2008; mainly due to strong 2008 production.

Total canola stocks were up 27.9 per cent from March of last year, to 5.9 million metric tonnes. Prairie on-farm stocks largely contributed to the rise with 4.7 million metric tonnes of canola, a 40.6 per cent increase. Farmers in Manitoba reported an estimated 920,000 metric tonnes of canola, up 39.4 per cent over 2008/2009 while in Saskatchewan stocks were 2.4 million metric tonnes, a rise of 70.2 per cent. Those above-average amounts of canola were the result of a record 2008 Prairie canola production and despite strong exports and domestic use for crushing.

A good production year for total wheat led to an increase in March 2009 stocks. Wheat (excluding durum) stocks were 24.8 per cent higher than last year, at 11.8 million metric tonnes, despite an increase in animal feeding and a low carry-in from 2007/2008. It was the same scenario for durum wheat, as higher 2008 durum production more than offset the very low carry-in from 2007/2008. Durum wheat stocks were at 3.8 million metric tonnes, up 85.8 per cent from March 2008 and above the five-year average. On-farm stocks of durum rose 141.9 per cent to 2.6 million metric tonnes.

Total oats stocks were a record 2.5 million metric tonnes, just surpassing the previous record 2.3 million tonnes in March 1983. While commercial stocks declined, on-farm stocks rose, reflecting reduced prices and slow exports to the United States.

Total barley stocks in March 2009 were the highest since March 2006. Feeding was higher in 2008/2009 as less corn was imported for feed. However, exports declined in comparison to 2007/2008 when significant sales of feed barley were made by the private trade in anticipation of the removal of the Canadian Wheat Board monopoly. Exports of malting barley this crop year to-date have been steady.

Corn stocks were similar to last year despite lower production and reduced imports. Exports returned to a more normal and lower level while industrial use of corn rose. Feeding of corn dropped significantly due to lower-priced alternatives.

Flaxseed total stocks increased in March 2009 largely because of lagging exports and a return to more normal production in 2008 after a reduced crop in 2007.

Total dry field peas stocks increased significantly, the result of high 2008 production combined with lower exports and domestic use. Total stocks increase 92.5 per cent to 1.7 million metric tonnes. Dry field pea on-farm stocks were well above-average in Saskatchewan and in Alberta.

US and world supply-demand

The US Department of Agriculture released its first 2009/2010 world supply and demand estimates in May. World wheat production for 2009/2010 was projected to reach 657.6 million tonnes, down four per cent from last year but still the second largest if realized. Lower output was projected for the major wheat exporting countries such as the EU-27, Ukraine, Russia and Canada. Total US wheat production was projected at 55.1 million metric tonnes, down 19% from last year on reduced planted area and lower expected yields. US wheat ending stocks for 2009/2010 were forecast 0.9 million metric tonnes lower than the previous crop year, mainly reflecting higher expected feed and residual domestic use.

World soybean production in 2009/2010 at 241.7 million metric tonnes was projected up 14 per cent from 2008/2009, with Argentina accounting for the most part of the increase. The Argentinean crop was forecast at 51.0 million tonnes, up 17 per cent as a result of higher harvested area and yields. World soybean ending stocks for 2009/2010 were projected at 51.9 million metric tonnes, an 18.0 per cent increase from 2008/2009. US soybean production was forecast at 86.9, a 6.4 million metric tonnes increase from 2008/2009. As a result of high production projections, US ending stocks were projected at 6.3 million metric tonnes, a 77 per cent increase from last year.

World corn production for 2009/2010 at a projected 785.1 million metric tonnes was down marginally from the 2008/2009 estimate. However, higher output was projected for corn producing countries such as Argentina and Brazil. Global corn ending stocks in 2009/2010 were projected at 128.2 million metric tonnes, down 8 per cent from 2008/2009. US corn production for 2009/2010 was anticipated to be 307.1 million metric tonnes, down 0.3 million metric tonnes based on lower seeded area and yields forecasts. Ethanol use was projected up from last year, reflecting the rising federal biofuels mandate and blending incentives that increased ethanol demand.

Canadian planting

Light rains fell across the Prairies toward the end of May, with a higher accumulation in Manitoba (Red River Valley completely saturated). Temperatures were below normal throughout the Prairies. Seeding progress was delayed relative to the past five year average with 45 per cent of seeding completed. Dry conditions in west-central Saskatchewan and east-central Alberta were beginning to raise concerns and farmers were considering slowing down seeding in anticipation of more moisture.

In Ontario , frequent showers delayed soybean planting and as of May 21 approximately 40% of the expected area had been planted.

US planting

Throughout May, moderate to heavy showers fell across the southern and eastern regions of the United States. By the end of the month, much of the Northern Plains regional temperatures were still dropping below freezing at nights. Seeding progress continued to be delayed in the eastern and southern Corn Belt and the Northern Plains spring cereal region. Across the United States, corn planting had reached 62% by the end of May.

Viterra’s Australian acquisition

Viterra Inc. has acquired ABB Grain of Australia for $1.4 billion. Viterra’s CEO, Mayo Schmidt, announced the new company will have enhanced access to high-growth market and margin opportunities. According to Viterra, global demand for agricultural commodities is forecast to increase by 20 per cent over the next 10 years, with much of the new demand coming from Asia. Viterra Inc., a Regina-based grain handler company, is diversified into sales and services of crop inputs and equipment, grain handling and marketing, livestock feed, agri-food processing and financial products. ABB Grain Ltd. Is an Australian agribusiness employing 1,100 staff across its division throughout Australia and its international operations.

Prices

The 2008/2009 world economic crisis had major impacts on agricultural commodity prices. Declining incomes around the world as a result of the growing worldwide recession combined with short-term appreciation of the US dollar resulted in significant declines in US agriculture exports and sharply lower grain prices.

In May, markets were worried about the US government’s credit rating and the prospect of a General Motors bankruptcy. Also, crude oil prices fell below US$57 a barrel as US unemployment figures rose again and the Paris-based International Energy Agency forecast oil demand would fall by three per cent this year. Even with the bearish markets news, May grain prices were lifted by the USDA supply-demand report. In May, the Canadian Wheat Board (CWB) released its monthly Pool Return Outlook (PRO) for the 2009-2010 crop year. Wheat PROs were steady to $2 a metric tonne higher than April for most classes. Milling durum values were up $9 per metric tonne. Malting barley was $4 per metric tonne lower and feed barley was $2 higher. The CWB also released its monthly PRO revisions for the 2008-2009 crop year. A strengthened Canadian dollar had led to slightly weaker values, despite higher futures’ prices. A strong durum market had helped to offset the effect of a stronger dollar, with milling durum PROs up $5 to $6 a metric tonne over the previous 2008-2009 PRO in March 2009. Designated barley was down $3 a metric tonne from the March PRO while Pool B feed barley values were unchanged.

Winnipeg canola futures traded higher in May lifted by talk of large exports to China and the strong surge higher in Chicago soybean complex futures’ prices.

Soybean futures’ prices rose significantly over the month of April and continued the rise in May. Throughout the month soybean prices increased steadily as supplies tightened and demand remained strong as production problems in South America shifted possible exports to the United States.

After ending April on a low, corn prices increased again in May. The surging soybean market and continued nervousness over the slow planting pace in the US eastern Corn Belt pushed Chicago corn futures’ prices higher.

In May, wheat futures’ prices were supported by weakness in the US dollar and wet weather. Rains in US soft red winter wheat areas threatened quality and yields and worried traders.

Strong export movement continued throughout the month, adding support to field pea markets. Canadian bulk conventional exports were well ahead of levels of the same time in previous years. The better-than-expected export rate helped to reduce stocks, relieving some of the pressure on markets dealing with the large supply. Feed pea markets remained quiet as peas were overpriced compared to other sources of protein. Only minor volumes of feed peas were exported to Europe so far this crop year. Instead, European feed pea users relied on domestic product almost exclusively to meet their needs because of sufficient supplies.

Lentil exports continued at near record pace as exporters and processors tried to secure supplies. Increasing grower bids, tightening supplies and the spring seeding season combined to discourage active grower selling. As a result, prices were expected to remain firm, for the short term at least.

Markets continued to monitor the red lentil crop development in Turkey as the harvest season approached. Crop projections remained in the 300,000 metric tonne range. At this level, production would not be sufficient enough to cover domestic needs. Turkey was expected to remain until the end of 2009 an importer of red lentils for both the domestic market and resale as splits to neighbouring countries. Syrian production was also higher than last year, although still below average levels. However, Syria maintained a ban on exports to ensure adequate supply for the domestic market. Market analysts projected acreage for red lentils in Australia to increase in 2009 in response to higher prices, although the crop will not be planted until winter. As world supplies recover, Canadian export potential could be limited.

Canada continued to dominate the green lentil market as no other sizable crops approached harvest. As such, prices held steady due to tightening supplies and limited grower selling. Markets were feeling some pressure from lower dry bean prices in South America . Consumers started to substitute dry beans for green lentils, potentially limited the quantity of lentils needed to be imported until the summer season.

Slow export demand and lack of grower selling kept the canary seed market stagnant. Exports to Europe and South America decreased by one-third and one-half respectively. There two countries were key customers of Canadian canary seed. Upside price potential was expected to be limited as consumers continued to cut discretionary spending. Consumers chose to stop feeding wild birds as their spending power was reduced.

World sunflower oil prices experienced an appreciation over the last month as the large supplies were depleted. The world sunflower oil market developed a premium over soybean oil. A portion of the increased strength in prices was due to projected lower world sunflower seed production in 2009/2010 and to a significant increase in world sunflower oil consumption.

North American oil-type sunflower seed prices continued to follow the rally in oilseed markets, driven by strength in corn and wheat prices, a rise in crude oil prices, a bullish stock market and a drop in value of the US dollar versus other currencies. The confectionary sunflower seed market remained stable with strong prices. Weather and planting progress were expected to be important market factors in the weeks ahead.