Situation Report – October 2009

View the most recent version.

Canadian production estimated lower

Statistics Canada surveyed approximately 14,000 farmers during the first week of September as the 2009 harvest was getting underway. Less than desirable growing conditions throughout the summer delayed crop development in many areas. However, dry, mild weather throughout much of September helped to finish maturing the crops and allowed farmers to start harvesting earlier than expected. Estimated yields for most crops were higher than those reported in the preliminary production survey completed at the end of June as a result.

Canola production on the Prairies fell 18.9% from 2008 to 10.3 million tonnes as a result of lower harvested area and yield. All three Prairie Provinces reported decreases; however, Alberta saw the largest decline where farmers expected to harvest 35.8% less canola this year. The estimated production of 2.8 million tonnes would be Alberta’s lowest production since 2003.

Canadian farmers harvested 19.5 million metric tonnes of wheat excluding durum. This was a 15.4% decrease from 2008 and below the five-year average of 20.2 million metric tonnes. Harvested area was down slightly from 2008 but yield decreased 15.2% to 38 bushels per acre.

Prairie durum wheat production decreased 8.2% from 2008 to 5.1 million metric tonnes. Production was well above the five-year average of 4.7 million metric tonnes but still significantly below the record high production of 6.0 million metric tonnes set in 1998. Harvested area decreased 8.2%, or 490,000 acres, from 2008 to 5.5 million acres. Yield was unchanged at 34 bushels per acre, slightly above the five-year average.

Soybean production in Canada was estimated at 3.6 million metric tonnes, an increase of 7.8% over 2008, as a result of record harvested areas in Quebec and Ontario. Quebec farmers expected to harvest 610,000 tonnes of soybeans, passing last year’s record production of 600,000 metric tonnes. Harvested area was also a record at 594,300 acres. In Ontario, production was expected to reach 2.6 million tonnes. Harvested area was a record high of 2.4 million acres while yield was slightly down from last year at 40 bushels per acre.

Feed grain production was down in all three Prairie Provinces as a result of declines in yield and harvested area for barley, oats and dry field peas. Prairie farmers estimated production at 8.5 million tonnes of barley, 2.5 million tonnes of oats and 3.2 million tonnes of dry field peas. Drought throughout much of Alberta and Saskatchewan and two significant hailstorms in Alberta negatively impacted the number of acres harvested for feed grain while floods in Manitoba reduced the number of seeded acres.

US and world supply-demand

The U.S. Department of Agriculture (USDA) increased its October projection for 2009/2010 ending stocks of wheat by 3.3 million metric tonnes compared to the previous month as a result of increased production and lower expected use. Production was also increased by almost 1.0 million metric tonnes to 60.4 million metric tonnes.

Global wheat supplies were projected to increase 2.0 million metric tonnes for 2009/2010 as an increase in world production more than offset a decrease in beginning stocks. World production was raised 3.0 million metric tonnes because of increases in several major exporting countries. Dry, warm weather during September increased projections for Canada’s wheat crop by 1.8 million metric tonnes while Russian production was increased by 0.9 million metric tonnes as a result of higher reported spring wheat yields. Production was also increased for EU-27, Algeria, Australia and Kazakhstan. Late season rains reduced Brazilian production and lower reported area lowered Chilean production, partially offsetting rising output elsewhere.

Global wheat trade for 2009/2010 was estimated to be higher because of larger projected imports by Brazil and exports by Canada. Global consumption was increased by 1.9 million metric tonnes. Higher expected wheat feeding in China, EU-27, Brazil and Russia and increased food, seed and industrial use in Canada, Algeria and Iran were projected to more than offset lower feed and residual use in the United States and Ukraine. Global ending stocks remained nearly unchanged at 169.4 million metric tonnes, up just 90,000 metric tonnes from last month.

The USDA reduced 2009/2010 beginning stocks of corn as higher corn use for ethanol, sweeteners, starch and exports boosted June to August use. Corn production was also forecast to be higher at 330.2 million metric tonnes because of an increase in average yields. As a result, corn ending stocks for 2009/2010 were projected to be 0.9 million metric tonnes higher.

Soybean production was forecast to be a record 88,000 metric tonnes. This was an increase of 136,000 metric tonnes from last month, based on higher yields. Because of the increased crop production and beginning stocks, total soybean supplies are forecast to be higher by 870,000 metric tonnes. Soybean ending stocks were projected to be 6.3 million metric tonnes, an increase of 272,000 metric tonnes from last month.

Global oilseed production was estimated to increase by 2.4 million metric tonnes from last month to 385.9 million metric tonnes. Global soybean production was projected higher as lower production in China only partly offset increases in United States, Argentina and Paraguay. Global rapeseed production was projected higher because of increases for Canada and EU-27. Other changes included lower sunflower seed production for Argentina, higher sunflower seed production for EU-27, higher cottonseed production for India and lower peanut and cottonseed production for China. Global oilseed stocks for 2009/2010 were increased to 59.9 million metric tonnes, up 4.0 million metric tonnes from last month. Soybean production accounted for most of the change.

GM flaxseed found in European shipments

The European Commission issued a Rapid Alert notification at on September 2 to confirm the presence of unapproved genetically modified organism (GMO) material found by German inspectors in flaxseed-containing food products. European labs had been testing Canadian flaxseed when initial analytical results indicated the presence of NPTII, a genetic marker common for many GM crops. The laboratories believed that this indicated the presence of CDC Triffid, a genetically modified flaxseed not approved for production in Canada. Further testing of baked goods containing flaxseed as an ingredient in a dozen different EU member-nations revealed many instances of the markers.

All shipments of Canadian flaxseed were immediately halted and any baked products made with the flaxseed were removed from store shelves.

The Flax Council of Canada worked with the National Research Council Plant Biotechnology Institute and DNA Landmarks to identify two flaxseed genomic sequences which flank the right border ends of the two T-DNA inserts in the CDC Triffid event. Event-specific PCR protocols were developed and made available to independent labs on October 19 to validate a robust event-specific PCR test for CDC Triffid in flaxseed seed samples.

Efforts to locate the source of the GMO material also continued under the direction of the Flax Council of Canada, the Canadian Grain Commission and the Canadian Food Inspection Agency. To date, no trace of CDC Triffid had been found in hundreds of samples tested from all regions of Canada.

GrainCorp Ltd. buys Canada Malting Ltd.

Australia’s GrainCrop Ltd. bought United Malt Holdings, the world’s fourth-largest maltster, for $US714 million. United Malt Holdings owned 14 plants around the world, including in the United States, the United Kingdom, Australia and Canada Malting Ltd. (CML) in Canada. CML was the Canadian operation of United Malt Holding’s North American malting division. The sale was expected to be closed in mid-November. CML has 50 percent of the Canadian malting market and has plants in Calgary, Alberta Thunder Bay, Ontario and Montreal, Quebec.

Suncor Energy resuming construction

Suncor Energy announced plans to resume construction on a $120-million expansion of its ethanol plant near Sarnia, Ontario. Plans had been suspended earlier this year because of market uncertainty. Expected to be completed in late 2010 or early 2011, the expansion would double the plant’s capacity to 400 million litres of ethanol per year.

Prices

The Canadian Wheat Board announced interim payments for the 2008/2009 crop year for most grades of wheat, durum wheat and designated barley. The interim payments for wheat ranged from $2.25 to $29.95 per tonne, depending on class, grade and protein level. Payments for durum wheat ranged from $13 to $17 per tonne for all grades except No. 5. Interim payments for designated barley were $7 per tonne for both two- and six-row barley. No interim payments were made for Pool B feed barley. Payments were made beginning October 21.

On October 22, the Canadian Wheat Board released its latest Pool Return Outlook (PRO) for the 2009/2010 crop year. Wheat values were unchanged from the September PRO while milling durum wheat was down $8 per tonne. Malting barley dropped $4 per tonne and Pool A feed barley was unchanged. Continued volatility in the currency and commodity markets added uncertainty to the forward outlook.

ICE Canada delisted the December 2009 Western barley futures’ contract on the same day that the October 2009 futures contract expired. October 14 was the last trading day for both futures contracts. These two contracts were the last remaining contracts under Rule 18, or previous contract specifications. Neither contract had any open interest at time of delisting. The barley contract was revised in June 2009, with new contract specifications under Rule 19. Among a number of revisions, the delivery region was shifted to southern Alberta, responsibility for shipment into the buyer’s facility was switched to the seller and a merchant participant category was created for traders who can make delivery. All Western barley contracts under Rule 19, including November 2009, January 2010 and subsequent months, remained listed.

Canola futures’ prices were supported by ongoing harvesting delays in northern Saskatchewan as a result of poor weather conditions and by a strong export program. Rumours of China entering the market also continued to provide support throughout the beginning of the month. Weighing on the market was the strong Canadian dollar, slow domestic crush levels and increased elevator company selling. News that China will not accept Canadian canola without a certificate showing it is free of blackleg starting November 15 put further downward pressure on the market during the last half of the month.

Continued delays in the corn and soybean harvest combined with a steady deterioration in the US dollar to support corn and soybean futures’ prices. The harvest period is usually characterized by weak prices, especially if big crops are predicted. Instead this season, December corn futures’ prices moved up to almost $4.40 per bushel versus a contract low of $3.06 and November soybeans topped the month at $10 per bushel, closer to the season high of $10.89 than the low of $8.42. Soybean oil futures’ prices were 37.25 cents per pound, an increase of 3 cents.

Dry field pea markets remained relatively quiet throughout the month as producers continued to wrap up this year’s harvest in Western Canada. The main factor driving the lack of activity was the absence of demand from Canada’s main customer, India. Shipments during the opening quarter of the crop year were down sharply from the past two seasons. The direction of the pea market moving into the winter shipping season will depend on when and to what extent India returns to the market. Because of hoarding and rising food inflation, the Indian government changed inventory ownership rules, reducing the length of time pulses could be kept in storage before penalties were applied. Large inventories of dry peas entered the market as warehouses were emptied. As a result, pea prices softened. Cheaper supplies from the United States, Ukraine and France also displaced some of the demand for Canadian origin dry peas.

Lentil markets started the month with good movement as harvest progressed, bringing much needed supplies back into the market. However, by mid-month, movement had slowed as end-users replenished their inventories and turned to buying on a hand-to-mouth basis. Market volatility over the past year has made customers more cautious with their purchases. Prices were pressured lower as the harvest progressed, creating some demand interest in the market. Canada remained the only country with any significant exportable lentil supplies, helping to support prices for the time being. Reports from Australia indicated a potentially larger crop and were supported by lower prices for new crop offerings. With harvest expected to start in late November, Canadian exports may face some increased competition moving into the winter shipping season. Rabi season lentil production in India could also impact lentil prices in Canada throughout the winter months.

Canary seed prices were pressured lower as harvest of the crop started in Western Canada and losses in other commodities spilled over into the market. A smaller crop was projected, although yields were better than expected. Prices are being kept under pressure because of an unsettled tone to the market and limited buying interest from end users.

World sunflower oil prices gained on other vegetable oil prices as prices continued to strengthen at key export locations. The Russian sunflower seed harvest progressed quickly, with reported yields better than expected. This put some pressure on sunflower seed prices as Russia tried to attract export demand.

In the United States, sunflower oil prices followed soybean oil prices slightly higher; however, the sunflower market was not as anxious despite delays in the harvest. Gains were also tempered by large old crop supplies and adequate new crop contracts.