Situation Report – September 2009

View the most recent version.

Canadian grain stocks at July 31, 2009

Statistics Canada surveyed 14,600 Canadian farmers from July 27 to August 4, 2009 for their July 31 year-end stocks.

Canadian all wheat stocks at July 31, 2009 increased almost 50.0% from the previous year. The increase was mainly due to large 2008 production and despite higher exports and domestic feed use. The stocks represented a return to more-normal levels after the record low stocks of July 2008.

Total barley stocks rose to 2.8 million tonnes, the highest level in three years. Strong 2008 production created large supplies. However, exports were reduced from the abnormally high levels of 2007/2008 when the expectation of the removal of the Canadian Wheat Board monopoly resulted in large feed barley sales. Barley feeding did increase as higher prices made imported corn less competitive in rations but the increase was moderated by reductions in livestock numbers.

July 31 oat farm stocks of 1.3 million tonnes hit a new record high, surpassing the 1983 previous record of 1.0 million tonnes. While supplies in 2008/2009 were similar to the previous year, reduced US demand and lower on-farm feed use pushed total stocks up. Farmers were reluctant sellers as prices declined significantly over the 2008/2009 crop year.

Rye exports, particularly to the United States and Asia, dropped by more than half in 2008/2009 compared to a year-earlier leaving large on-farm stocks at year-end.

Flaxseed exports lagged in 2008/2009 and year-end stocks rose despite more domestic use. There was a re-building of farm stocks after the very low carry-out in July 2008.

Record canola production in 2008 resulted in large 2008/2009 supplies. Year-end stocks rose over the previous year despite significantly increased export demand and record crushings. Farm stocks were well above the five-year average. The large stocks were not a concern to the industry due to the combination of reduced 2009 production and the building or expansion of several crushing plants in Western Canada.

Production shortfalls around the world led to increased export demand for most Canadian pulses. As a result of a strong export pace throughout the entire year, dry pea stocks ended the crop year slightly above average levels, despite record production. Large exports into the human consumption market reduced ending stocks below initial projections. Lentil supplies ended the crop year at very low levels after a year of high export demand. Supplies were tight to start the 2009/2010 crop year as a result. Mustard stocks ended higher than the previous crop year but were still well below historical levels. Higher production was offset by strong export demand. Reduced carry-in stocks helped to offset increased production to leave year-end stocks of canary seed below the previous five-year average for a second consecutive year. Good export demand kept stocks tight, although the global economic downturn affected some export sales. Sunflower seed stocks remained tight as lower production and reduced carry-in stocks were met by strong export demand. As a result of near record low production, chickpea stocks finished the year below the previous crop year’s level. Exports were also down because of strong world chickpea prices and the availability of lower priced substitutes.

US and World supply-demand

The US Department of Agriculture (USDA) projected higher 2009/2010 world wheat production compared to the August forecast with increases from EU-27, Russia, Paraguay and South Africa. World wheat supply projections increased 3.7 million metric tonnes based on larger 2009/2010 production.

World soybean production for 2009/2010 was projected at a record 243.9 million metric tonnes, up 1.9 million from the August forecast with increases in the United States and Brazil. US soybean crush was raised 0.5 million metric tonnes due to higher projected soybean meal exports. US soybean ending stocks were projected at 6.0 million metric tonnes, up 0.3 million from the August projections.

World 2009/2010 corn production was projected at 794.1 million metric tonnes, up from August with ending stocks projected down to 139.1 metric tonnes because of high feed use and export demand. US corn production for 2009/2010 was projected at 329.0 million metric tonnes, 4.9 million higher than in August with higher expected yields throughout most of the Corn Belt. US corn supplies were projected at a record 372.4 million metric tonnes, up 7.7 million metric tonnes from the previous 2007/2008 record.

Lower Australian canola production

The Australian Bureau of Agriculture and Resources Economics (ABARE) estimated canola production for the 2009/2010 crop year at 1.9 million metric tonnes, up from 1.7 in 2008/2009. Canola is slowly catching on after last year’s severe drought. Earlier in the decade Australian canola production was as high as 4.0 million metric tonnes.

Viterra’s ABB takeover approved

In September, ABB’s Grain Ltd.‘s shareholders voted overwhelmingly to accept Viterra’s takeover offer of cash and shares. The last step was approval of the Federal Court of Australia, normally granted the next day. Viterra shares gained a few cents on the day of the announcement to finish the day at $9.35.

Viterra Inc. also announced it had acquired Lakeside Fertilizer, a division of XL Foods Inc. and southern Alberta's largest independent retailer of fertilizer and agricultural chemicals. XL Foods Inc., part of the Nilsson Bros. Group of companies, is the largest Canadian owned and operated beef processor in Canada.

Argentina’s farmers struggle

In Argentina, a year-long drought has dramatically worsened conditions in the agricultural economy. Farmers are requesting help from their central government. During much of 2008 large-scale and well-organized demonstrations blocked roads and ports, paralyzing exports movement. Similar actions are happening again in Argentina. Farmers staged an eight-day non-delivery protest against government farm policies. Members of farm organizations stopped sales of beef, soybeans and grain during the strike. The latest strike was triggered by a veto from the country’s president of legislation that would have exempted farmers in the worst-hit drought regions from port taxes on farm products.

GreenField Ethanol’s new plant

GreenField Johnstown (Ontario) ethanol plant was officially opened on September 9^th. Johnstown’s annual capacity is about 200 million litres, making it the largest corn ethanol facility in Canada. GreenField Ethanol is the leading producer in the country with other locations at Chatham, Hensall and Tiverton in Ontario and Varennes in Québec.

Prices

On September 27th, the Canadian Wheat Board (CWB) released its September 2009/2010 Pool Return Outlook (PRO). When compared to the previous forecast wheat values ranged from down $13 per metric tonne to up $3 per metric tonne, depending on the grade and protein level. Milling durum PROs declined $25 per metric tonne. Malting barley was down $12 per metric tonne compared to August, while the Pool A feed barley PRO dropped by $9 per metric tonne.

Winnipeg canola futures’ prices were lower in September reflecting losses in international oilseed and vegetable oil markets. Canola was also pressured down by the advancing harvest of a larger than expected canola crop.

Soybean futures’ prices traded sideways for most of September but ended the month up. Soybean prices were first pressured down on large crop outlooks and non-threatening weather. At mid-month the prices were pressured up on danger of a frost creeping into Midwest crop areas and reducing down yield potential.

Corn futures’ prices were up from August on outside market strength such as crude oil, equities and the American dollar. Corn prices also got support from the late developing crop.

Wheat futures’ prices were pressured down because of large world supplies due to larger world production.

Field pea markets eased as harvest progressed around the world. Delays with the Canadian crop allowed Central European exporters to capture a share of the Indian market. Indian traders were not waiting for state trading companies to sell more products at auction. Instead, they took advantage of the chance to buy yellow peas from Europe at competitive prices. US product was also reported to be available at lower prices during the beginning of September, putting more pressure on Canadian prices. Reports from Australia were optimistic about this year’s crop prospects because of good, early winter rainfall.

Green pea prices were supported in Canada by reports of poor quality coming in. Samples showed damage from bleaching, immature seeds and uneven germination. As a result, the quality of the green pea crop is expected to be down.

Feed pea prices followed edible pea prices down in September. Prices were expected to remain under pressure because of a lack of new demand and quality concerns.

Lentil markets experienced some harvest-related pressure throughout September, pushing prices below summer levels. Strong prices at the start of the month encouraged off-the-combine sales. As well, producers began to fill fall delivery contracts. The result was downward pressure on the market as end-users saw the market declining in the medium term. Limited shipping capacity also put pressure on prices as processors tried to balance in-coming supply with available export opportunities.

Harvesting of Canada’s lentil crop was mostly completed, with quality being generally good. Higher acres and average yields were expected to result in higher production. Offsetting this to some degree was the fact that Canada remained the only country with a sizeable exportable supply of lentils. This should continue at least until 2010, allowing for strong shipping activity until Christmas.

Mustard markets started to show some easing in the near-term as harvest began. Domestic prices remained fairly steady as a result of strong domestic demand. However, Eastern European mustard crops were reported to be in good shape. High estimated production from increased acreage would allow these countries to meet European needs, displacing demand for Canadian product this year. To attract new demand in order to keep stocks manageable, Canadian prices may have to decline to meet European bids, which were trading at levels 10 cents per pound below Canadian prices.

Oil-type sunflower markets continued to follow soybean and canola markets, losing some value as commodity markets weakened. A slower crushing pace and large stocks of oilseeds also helped to pressure prices down. Sunflower oil prices were expected to remain at a discount to soybean and canola oils for the time being. Lower projected world production should help sunflower oil to return to a premium as the harvest nears completion and carryover stocks are exhausted.

Confectionary sunflowers continued to trade at a large premium over oil-type sunflower. Limited old crop stocks, on-going frost threats and strong consumer demand supported prices throughout September. Canada has become a key player in the confectionary market as US confectionary seed production has slumped and Argentine production has been drastically reduced by drought. As a result, domestic prices were expected to remain strong until the end of 2009 and into the new crop year.