Situation report – August 2009

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Canadian canola production expected to be lower

Statistics Canada surveyed 14,600 Canadian farmers in late July and early August and published the first 2009 production estimates on August 21. In Western Canada, late germination caused by unfavourable conditions last spring delayed progress by about two weeks compared to normal. Yields will drop for all major crops compared to 2008. In the Prairie provinces, yields and production were expected to drop in part because of drought conditions in areas of Saskatchewan and Alberta.

Canadian canola production should decline 25.0% from 2008, to 9.5 million metric tonnes, because of lower seeded area and lower yield. The province of Alberta had the largest drop at 2.6 million metric tonnes, a 38.8% decline from 2008.

Total wheat production may decline by 17.5% from 2008, with 23.6 million metric tonnes. Durum wheat output was lower at 4.5 million tonnes, an 18.1% drop. Production of feed grains such as barley and oats is also expected to drop heavily.

On the other hand, farmers in Quebec and Ontario are expecting an increase in soybean production. Ontario production could rise to 2.5 million metric tonnes. In Quebec, soybean production was expected to reach a record 0.6 million metric tonnes. The production increases are due to higher seeded area in 2009 as yields declined.

Prairie harvest begins

Harvest operations in Saskatchewan started during the week of August 10 according to Saskatchewan Agriculture. About 1.0% of the 2009 crop had been combined, and 7.0% had been swathed or was ready to straight-combine. The five-year average is 4.0% combined and 8.0% swathed or ready to straight-combine at this time of year. Harvest operations were most advanced in the southwestern and southeastern regions of the province. Most of the province had fairly good growing condition in early August.

In Manitoba, soybean crops were looking good in late August but were late and needed a killing frost to hold off until the end of September. Canola crops ranged from hanging onto the last few flowers to being swathed.

The Alberta harvest began by mid-month mainly for winter cereals and dry peas in the southern, central and northeast regions. Uneven crop growth within the same field was reported for crops across the province.

US and world supply-demand

The US Department of Agriculture (USDA) projected higher 2009/2010 world wheat production compared to July with major increases for India, the United States, EU-27, China and Ukraine. World wheat supply projections increased 5.0 million tonnes higher with higher beginning stocks and production. US wheat ending stocks for 2009/2010 were projected 1.0 million metric tonnes higher in August as higher forecast production more than offset an increase in projected use and lower imports. US wheat production was forecast 1.9 million metric tonnes higher with increases in all classes except soft red winter.

World soybean production for 2009/2010 was projected higher than July with 242.1 million tonnes. Ending stocks for 2009/2010 were forecast at 50.3 million metric tonnes. US soybean production was 87.1 million metric tonnes, 1.7 million metric tonnes below the July projection, but 6.5 million metric tonnes above last year’s crop.

World 2009/2010 corn production was projected at 796.3 million metric tonnes, up from July with ending stocks projected at 141.5 million metric tonnes. US corn production for 2009/2010 was projected at 324.1 million metric tonnes, up 12.0 million metric tonnes as higher forecast yields more than offset a small reduction in harvested area. US corn supplies were projected at a record 368.2 million metric tonnes, up 3.5 million metric tonnes from the previous record 2007/2008.

TRT-ETGO starting production in early 2010

The canola and soybean crushing company TRT-ETGO (Twin Rivers Technologies – Entreprises de transformation de graines oléagineuses du Québec) will start its production in Bécancour, Quebec, at the end of 2009 or early in 2010. The plant will need 3,000 metric tonnes of grains (soybean and canola) a day, or one million metric tonnes a year. Approximately 1,200 metric tonnes of oil and 1,800 metric tonnes of meal will be produced daily. The same plant will refine canola, soybean and palm oils. Those oils will be use by the food industry while the meal will go to livestock. The plant will buy grains from Quebec producers but also from Ontario, the Prairies and the northeastern American states.

NorthWest Bio-Energy opens

NorthWest Bio-Energy Ltd.’s new biofuel facility near Unity, Saskatchewan, opened its door for the first time August 19. The company, a subsidiary of the farmer-owned grain terminal NorthWest Terminal Ltd., is expected to produce 25 million litres of wheat-based fuel ethanol on an annual basis.

Churchill shipping season

Heavy ice in Hudson Strait delayed the shipping season a few weeks at the northern Manitoba port of Churchill. According to the Canadian Wheat Board (CWB), 2009-2010 will comprise their second-largest grain movement through the port since 2000 with a target of 450,000 metric tonnes. The CWB has been the only port’s user for the last three seasons. Grain makes up 90% of total transhipment volume.

Prices

On August 27th, the Canadian Wheat Board (CWB) released its August 2009 Pool Return Outlook (PRO) for the 2009/2010 crop year. Wheat values were reduced from the July PRO by $19 to $28 per tonne. Durum values declined by $27 to $31 per tonne. Feed barley dropped $4 per tonne, while malting barley values were down $18 to $20 per tonne from previous month. Overall the 2009/2010 PROs were lower than in 2008/2009.

Winnipeg canola futures’ prices were on the up side after dropping in July. Canola prices were pressured higher by Malaysian palm oil posting strong gains, a weaker Canadian dollar and a smaller-than-expected 2009 Canadian canola production. Lagging development of the canola crop and potential frost damage were also supportive influences.

Soybean futures’ prices traded sideways for most of August but ended the month up. Soybean prices dropped sharply at mid month on lower-than-expected US crushing data, favourable near term weather and bearish outside financial markets. Later in August, soybean futures’ prices regained strength on robust exports, a rally in crude oil and concerns that an early Midwest frost could harm crops.

Throughout August, corn futures’ prices were pressured down by a stronger US dollar and favourable weather forecasts.

Wheat futures’ prices were on the low side pressured down by a firmer US dollar, falling corn futures’ prices and weak fundamentals. Lower-than-expected 2009 Canadian wheat production was also bearish to wheat prices.

Field pea markets remained firm throughout the month as the transition to new crop pricing was completed. Markets in the United States were helped by USDA PL-480 food aid purchases. Meanwhile, weather concerns continued to plague markets in Western Canada. Heavy rainfalls brought worries of seed coat damage as crops reached maturity. Frost remained a large concern as night temperatures continued to dip lower.

International markets continued to monitor India’s kharif season progress to gauge potential price prospects for the upcoming season. Out of 626 administrative districts in India, approximately 167 have declared a drought this year. In an attempt to slow food price inflation, the Indian government will subsidize pulse imports to help bridge the domestic supply gap and keep prices under control.

Countering some of the concerns with production were reports of large stocks of field peas at major ports in India, causing some concern about the depth of Indian demand. Rainfall levels improved during the monsoon season, allowing total land in pulses to move ahead of last year.

Field pea prices held steady throughout the month. However, the value at which peas were a competitive ingredient in livestock rations from a protein perspective varied dramatically across the country. These variations in values were mainly a result of swings in soybean meal prices.

International lentil markets completed the transition to new crop pricing as old and new crop prices merged. Reports of limited harvest activity and the unwillingness of buyers to pay old crop premiums kept trading activity quiet. Lentil prices remained strong heading into the harvest season because of tight supplies and yield and quality concerns. Recent heavy rains could cause bleaching and wrinkling of seed coats if the crops were near maturity. While lentil yield potential generally looked good, the crop was still behind in development, making frost a concern in some areas.

Canary seed markets in Western Canada maintained their quiet tone as participants continued to watch crop development. End users were purchasing only limited quantities of product as high prices kept margins tight. Prices could be pressured downward if harvest selling activity exceeds the needs of processors and exporters. However, prices could see some strength because of poor growing conditions, reduced acres and threats of early frosts. The value of the Canadian dollar could become a factor on prices, especially because canary seed sales are lately US dominated. Grower selling attitude will also have an impact on prices moving forward.

World sunflower seed production prospects continued to decline as growing conditions further deteriorated in Russia and Ukraine. Ongoing rainfall deficits and high temperatures sharply reduced soil moisture supplies from levels one year ago. The lack of moisture will impact yields of sunflowers starting to mature now in Russia.

Canadian sunflower seed development continued to lag behind normal stages. A reduction in growing degree days kept sunflowers seven to fourteen days behind in development. Prices saw little movement throughout the month as markets watched the weather. If frost occurs before mid-September, prices could be pushed higher because of poor quality. After that date, sunflowers should be developed enough to withstand cooler night temperatures.

Oil-type sunflower seed markets moved upward in response to stronger vegetable oil and canola markets. Confectionary sunflower seed markets, meanwhile, were mostly unchanged because of tighter old crop supplies.