Situation report – June 2009

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Canadian spring plantings

Statistics Canada surveyed 25,000 Canadian farmers for their seeded area. Data collection for the June farm survey was carried out from May 25 to June 3, 2009. Prairie farmers reported that planting was near completion, with unseeded pockets remaining in mainly northern areas and in the Red River Valley and Interlake regions of Manitoba affected by the spring floods.

Canadian farmers planted 6.9% more area in spring wheat this year with 17.5 million acres. In the Prairie provinces spring wheat seeded area was up 7.3% at 17.1 million acres. Spring wheat was up in Manitoba, farmers planted 13.8% more spring wheat, followed by Saskatchewan at 7.1% and Alberta at 4.6%. Durum wheat plantings declined 7.5 % to 5.6 million acres, still below the five-year average of 5.1 million acres. The Prairie all wheat five-year average (2004-2008) is 22.6 million acres.

Canola seeded area in Canada decreased by 2.1% for a total of 15.8 million acres planted this year. Prairie farmers reported that the area seeded to canola had declined 2.0%, at 15.7 million acres, down 325,000 acres from the 2008 record. The Prairie canola five-year average is 14.1 million acres. Cold and wet weather was responsible for this decline.

Flaxseed in Canada had a second consecutive annual increase in area seeded, up 10.3%, from 1.6 to 1.7 million acres.

Canadian farmers planted 6.2% less barley this year with 8.8 million acres. Barley on the Prairies fell 545,000 acres from 2008, a second consecutive annual decrease. Oats seeded area in Canada decreased by 10.7% for a total of 3.9 million acres planted this year. Prairie oat plantings declined 480,000 acres to 3.4 million tonnes, the lowest level since 2005.

Canadian farmers planted 17.0% more soybeans this year with 3.5 million acres. In Ontario and Quebec, soybean areas rose to new highs. The acreage in Ontario rose 14.3% to a record 2.4 million acres. The previous record of 2.3 million acres was set in 2004. In Quebec farmers reported a 4.3% increase to 598,000 acres.

Total Canadian grain corn area was up 66,000 acres to 3.04 million acres, above the five-year average of 2.6 million acres.

Total Canadian pea acreage decreased 6.3 % to 3.7 million acres. Approximately 2.3 million acres of lentils were planted, an increase of 44.0 % from one year ago. The Canadian five-year average is 1.7 million acres. Sunflower area in Manitoba decreased 5.9% to 160,000 acres, the lowest level since 1998. Canadian canary seed area decreased to 300,000 acres, down 27.7% from 2008.

US and World supply-demand

The US Department of Agriculture projected world wheat production for the 2009/2010 crop year lower at 1.6 million metric tonnes from last May. Production was estimated lower for EU-27, Canada and Ukraine. Canadian wheat production was reduced a million metric tonnes from previous USDA forecasts on dryness in Alberta and Western Saskatchewan and cold temperature that delayed seeding and development across the Prairie Provinces. As a result of the lower global production, forecast world wheat ending stocks were reduced to 51.0 million metric tonnes, down 0.8 million metric tonnes from May’s forecast. US wheat ending stocks for the 2009/2010 marketing year were projected higher in June.

World soybean 2009/2010 ending stocks were projected lower to 51.0 million metric tonnes because of lower world production estimates and higher exports and crush. US soybean 2008/2009 ending stocks were projected at 7.8 million metric tonnes, down 0.5 million from the May forecast. US soybean exports to China were expected to rise significantly, pushing the overall 2008/2009 US export forecast up by 0.3 million metric tonnes to a record 34.0 million metric tonnes. Higher projected soybean meal exports increased the 2008/2009 US soybean crushing forecast.

World 2009/2010 corn production was projected at 781.46 million metric tonnes, down from May. Ending stocks were estimated at 125.5 million for 2009/2010. US 2009/2010 corn production was estimated down 0.3 million metric tonnes to 3.9 million metric tonnes. The US yield average was reduced as continued delays through late May reduced yield prospects, particularly for the eastern Corn Belt.

Viterra strong second quarter results

Viterra, Canada’s largest grain handling company announced that it had returned to profitability in the second quarter of the calendar year and expected solid performance from its grain operations for the rest of the year. During the first quarter Viterra had a $33 million loss as the result of high fertilizer inventory due to slow sales and falling global commodity prices. Viterra’s chief executive Mayo Schmidt said the company was able to outperform the industry in terms of grain shipments during the second quarter. According to M. Schmidt, sales in the agri-products side of the business, which includes fertilizers, gained momentum during the quarter.

In June, Viterra also announced its plans to acquire a canola crushing operation in Sainte-Agathe, Manitoba, for about $64 million from Associated Proteins LP. The facility employs about 50 people. The chemical-free plant has a canola crush capacity of 1,000 metric tonnes per day and produces canola oil that is low in trans and saturated fats.

Alliance Grain Traders to acquire Turkish grain processors

Alliance Grain Traders Income Fund announced its $104 million deal to merge with its founding partner and major shareholder, Arbel Group of Mersin, Turkey. Alliance Grain Traders Income Fund is one of Canada’s largest buyers, processors and exporters of green lentils. The Company is also engaged in the business of buying, processing and exporting canary seed. The company is registered in Ontario but its principal operations are in Saskatchewan. Arbel is a leading producer of lentils and grains and the largest exporter of pulses in Turkey. The merge with Arbel will provide access to markets in North Africa, the Middle East and Western Europe.

Prices

The 2008/2009 world economic crisis, currency markets and crude oil prices had major impacts on agricultural commodity prices in the past few months. In July 2008, crude oil prices were at a historic high at US$145 a barrel. The price dropped to a low of US$33.87 a barrel in December 2008, down 77%. Since May 2009 the barrel price recovered some ground, rising 30%, the biggest jump since 1999. Grain prices followed crude oil price trends, reaching record prices in the summer of 2008 and dropping to new lows in the fall of the same year. June was not an exception, with crude oil prices increasing again as the US currency slipped against the euro, down at mid-month, and then back up again at the end of June. Also, improving weather and crop progress reports influenced grain markets

The Canadian Wheat Board (CWB) released its June 2009/2010 Pool Return Outlook (PRO) on June 25^th for feed barley in Pool B with prices unchanged from May’s PRO. The CWB also made a final payment on feed barley delivered to Pool A of 41.64 a tonne bringing the total payment to $191.64.

On June 23^rd, CWB announced that 2008/2009 initial payments for wheat and durum would increase. The increase will be $20 per tonne for wheat excluding durum. Durum will increase $55 per tonne for all grades except No. 5 CWAD.

Winnipeg canola futures’ prices were volatile during June; however, the general trend by the end of the month was up. Canola prices traded higher in early June following the crude oil prices. Uncertainty about canola crop due to late seeding and frost and a strong export line-up into July gave support as well.

Soybean futures’ prices were one of the strongest markets during the first half of June, setting a new eight-month high, following crude oil prices and supported by weakness in the US dollar and tight US old crop stocks. By the end of the month soybean futures’ prices declined due to improved Midwest weather.

Wheat futures’ prices traded sideways most of June and ended the month on the down side. Wheat prices started the month higher because of fund buying and a weak US dollar. By mid-month wheat prices were pressured lower by bearish outside market forces including and a weak demand for US wheat.

Corn futures’ prices started the month of June on a high note on support from a weaker US dollar, higher crude oil prices and surging equities. From mid-month until the end, improving weather conditions pressured prices down.

Weather conditions in Canada and other major pulse producing regions in the world were driving the pulse markets for the month. Traders watched crop development in Western Canada as the lentil harvest began in the Middle East. The markets were uncertain of the quality and size the Turkish crop; however, initial reports saw production falling below regional needs. The Syrian government estimated the red lentil crop to be at 117,000 MT, a level which would allow the country to export some product. Traders, however, thought that the crop was much smaller because Syria continued to ban exports.

Tight red lentil supplies in Canada helped to maintain prices even as the Middle East harvest progressed. Prices had eased somewhat because of the gap between old and new crop prices. Exporters and processors did not want to be stuck with high priced product to sell, instead choosing to wait until the Canadian harvest begins before securing supplies. Pre-Ramadan buying also helped to support prices and demand early in the month.

North American dry pea markets were supported by significant demand from the US government for yellow peas for shipment as food aid. As a result, US prices were at a premium to the world market and processing capacity was full. Canada was able to benefit from the US situation with strong demand for Canadian origin product. Traders were also watching crop development as adverse weather conditions throughout Western Canada slowed initial crop growth.

Feed peas were supported by rising international feed ingredient values and a weak US dollar. There were reports of a shipment of feed peas to Spain early in the month. Spain could be an important market once again for low-quality peas because of its potential crop failure and large hog industry.

Limited grower interest helped to keep canary seed markets quiet. The key canary seed growing area in Western Canada remained dry, causing concerns about yield prospects. The combination of potentially reduced acres and yield in Canada could cause supplies to fall close to the needs of the market. Prices were pushed higher on the threat of tight supplies and limited grower selling.

Oil-type sunflower seed markets were helped by general strength in oilseed markets. Tight US and world soybean stocks and a reduced South American crop supported the markets.

Weather conditions throughout the world could have an impact on sunflower yields. World sunflower seed production was expected to decline for the 2009/2010 crop year. OIL WORLD Weekly projected output to be 32.1 million tonnes, down from 2008/2009 record production but still the second highest on record. Russia and the United States were projecting slight declines in sunflower seed plantings while Ukraine estimated plantings to be near last year’s record area. Insufficient soil moisture combined with reported reduced fertilizer applications were expected to lower average yields and production.

The forecast decline in production was partly offset by higher sunflower seed stocks. However, unusually large exports disposed of the global export surplus, leaving the potential for tight world stocks in the first half of next season. As a result, sunflower oil prices were expected to develop a premium over soybean oil in the short term.

Confectionary sunflower seed markets remained unchanged throughout the month as a result of the tight balance between the needs of the market and product available from growers.

Adverse growing conditions also had an impact on mustard markets. Prices held reasonably steady throughout the month but could move higher if conditions do not improve soon. Already tight supplies could become tighter if weather problems continue.