Situation Report – November 2009

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US and world supply-demand

The United States Department of Agriculture (USDA) reduced its projections for 2009/2010 US wheat supplies marginally in November because of small revisions to hard red spring wheat and durum wheat production. Ending stocks were projected to be at a ten-year high of 24.0 million metric tonnes. The increase in ending stocks is due to reduced exports based on the slow pace of export sales and increased competition from major Black Sea exporters.

Global wheat supplies were increased 1.5 million metric tonnes as higher production more than offset reduced beginning stocks. World production was raised 3.5 million metric tonnes. Most of the increase came from FSU-12 as an extended growing season and favourable harvest boosted yields. Production estimates were raised 1.8 million metric tonnes each for Kazakhstan and Russia based on indications of higher yields for spring wheat. Offsetting some of this increase were decreases in production of almost one million metric tonnes for EU-27 and 0.5 million metric tonnes for Canada.

Global wheat trade was projected higher in November as imports were raised for EU-27, Israel, South Korea, Syria, Turkey, Bangladesh and China. Higher exports for Russia, Kazakhstan and Ukraine partly compensated for lower export projections for EU-27 and Canada. Abundant supplies of low-priced Black Sea wheat were expected to limit export opportunities for traditional exporting countries. Global consumption was increased with higher wheat feeding projected in Russia, Israel, South Korea and Morocco.

US corn production was forecast down 2.5 million metric tonnes to total 328.2 million metric tonnes because of a 1.3 bushel per acre reduction in expected yield. If realized, yield would still be the highest on record and production would be the second highest level on record. US corn exports were lowered to reflect the slow pace of sales and shipments in recent weeks. Prospects for increased competition from larger Black Sea corn and wheat supplies also weighed on export projections. US corn ending stocks were reduced by 1.2 million metric tonnes in November.

Global coarse grain supplies were estimated to be 1.8 million metric tonnes lower. A reduction in corn beginning stocks and production was only partly offset by higher EU-27 mixed grain, barley and oat production and higher Kazakhstan barley production. Higher 2008/2009 feed use in EU-27 and higher food, seed and industrial use in South Africa were reflected in a reduction in global corn beginning stocks by over 0.8 million metric tonnes. Global corn production was lowered 2.5 million tonnes as a result of reduced production for the United States, Brazil, EU-27, Russia, Venezuela and Canada. Increased production in South Africa and Ukraine helped to temper some of the global decrease in production.

US soybean production was forecast at a record 90.0 million metric tonnes. This was a 1.9 million metric tonne increase from the October projections. Yield was also expected to set a record at 43.3 bushels per acre. Soybean exports were raised 0.5 million metric tonnes to 36.0 million metric tonnes. Increased supplies and increased global import demand from China, EU-27 and Russia led to this increase.

Global oilseed production for 2009/2010 was increased 3.6 million metric tonnes from last month to 428.9 million metric tonnes. Increases in soybean and rapeseed production were larger than decreases in sunflower seed, cotton seed and peanut production. Global soybean production was forecasted to be higher because of increased production in the United States, Brazil, Argentina, Paraguay and Uruguay. Argentina sunflower seed production was reduced because of a reduction in planted area as a result of dry conditions during planting. Global rapeseed production was projected higher as reduced production in Canada only partly offset increased production in EU-27. Other changes included higher sunflower seed production in Ukraine and EU-27 and lower cotton seed production in China.

Global oilseed stocks were raised 3.0 million metric tonnes to 69.0 million metric tonnes. Increased soybean stocks in Brazil, the United States and China accounted for most of the change while rapeseed stocks also increased in Canada, EU-27 and India. Global vegetable oil stocks were estimated to be 0.9 million metric tonnes higher because of larger soybean stocks in Brazil, China and India and palm stocks in China and Malaysia.

China restricts canola imports over blackleg

China’s Administration of Quality, Supervision, Inspection and Quarantine (AQSIQ) announced that as of November 15, 2009, a phytosanitary certificate is required for canola shipments to China certifying that the shipments are free from blackleg. The measures were put in place to address China’s concerns with the possible importation of blackleg. Even with a certificate, Chinese officials would re-test the shipments upon arrival at port. All canola shipments that test positive would only be allowed into a limited number of provinces in China. Shipments that test negative for blackleg could be imported anywhere in China.

A delegation from Agriculture and Agri-Food Canada (AAFC) and the Canadian Food Inspection Agency (CFIA) met with Chinese officials; however, no reasonable risk mitigation strategy could be reached before the measures came into effect.

The CFIA laboratory in Ontario has been working on developing a Polymerase Chain Reaction (PCR) technology to test for blackleg in canola in order to better meet the new regulations. The test would amplify the DNA specifically for the blackleg pathogen so it can be detected more easily, allowing for a much quicker turnaround time on testing.

In 2008/2009, China was Canada’s top canola seed market with imports of 2.87 million tonnes valued at $1.3 billion. According to the Canola Council of Canada, China was expected to account for 70% of Canadian exports in 2009/2010.

Australia was also notified that their canola shipments to China must be certified free from blackleg effective October 15, 2009. Australian officials are working with Canada to reach a solution with China.

Canola meal shipments refused

The United States Food and Drug Administration (FDA) refused nineteen shipments of Canadian canola meal after finding they contained the bacteria salmonella. The FDA refused sixteen shipments on October 30 and three on October 12. All shipments originated from a canola-crushing plant that had already been under shipping restrictions because of earlier shipments of canola meal contaminated with salmonella. Three additional canola-crushing plants remained under restrictions from incidences earlier in the season.

The restrictions against Canadian canola plants resulted in a drop in canola crushing volumes in Canada since August 1. Some canola exporters started to avoid the United States, instead shipping canola meal and pellets through the Port of Vancouver to smaller markets at lower returns.

Canada and the EU reach agreement on flaxseed

The European Union (EU) has agreed to a new protocol developed by the Canadian government in consultation with the Flax Council of Canada, Canadian flaxseed exporters and DG-SANCO of the European Commission. The protocol involves testing flaxseed as it leaves the farm, is in commercial storage, and is loaded into rail cars. Shipments would also be tested again in Belgium, where most Canadian flaxseed arrives in Europe. CFIA continued to test commercial seed samples to identify potential points of contamination and determine the presence of CDC Triffid within the Canadian flaxseed supply. CDC Triffid is a GMO flaxseed developed in Canada but never registered because of concerns over potential contamination and rejection of product by the European Union.

Churchill sees second-highest wheat volume in decades

The Canadian Wheat Board (CWB) shipped 529,000 tonnes of western Canadian wheat through the Port of Churchill during the 2009 shipping season, the second-highest volume since 1977. The last ship to load left the port on October 27 with 23,000 tonnes of wheat and durum wheat bound for Europe. In total, 18 ocean vessels were loaded with wheat or durum wheat at Churchill beginning August 12. Final destinations included Africa, Europe, Mexico and Brazil.

CWB opens new lab

The Canadian Wheat Board opened a new grain testing laboratory at Innovation Place in Saskatoon, Saskatchewan to test Prairie grain itself rather than send it to third-party laboratories. The laboratory will grade wheat and barley and test it for protein, baking attributes and other factors that affect grain quality. Composite samples will be sent to prospective customers all around in the world. In this way, the CWB will be able to enhance its ability to serve international wheat and barley customers and to strategically market farmers’ grain.

Prices

On November 26, the Canadian Wheat Board released its latest Pool Return Outlook (PRO) for the 2009/2010 crop year. Wheat values increased between $1 and $10 per tonne from the October PRO while durum wheat and malt barley values were unchanged. Pool A feed barley was up $7 per tonne. The first Pool B feed barley PRO was announced at $152 per tonne.

The international economic situation showed signs of improvement throughout November, reducing perceived risks in a number of markets, including wheat futures. Speculative money flowed into US wheat futures’ markets, pushing prices higher despite weaker supply-demand fundamentals. Relationships between world prices remained volatile. The Euro continued to trend upward with Australian and Canadian dollars following a similar pattern. The strength of the European and Australian currencies against the US dollar provided some support for the international wheat price structure.

The fundamentals of the durum wheat market remained weak in light of large world durum wheat production. Prices did recover in November after falling significantly over the past three months. However, durum wheat prices remained at historically wide discounts to spring wheat, limiting the nearby available supply and providing some support to prices. At the beginning of November, the European Union removed a $25 per tonne tariff on durum imports to all EU countries after concerns about the way it was calculated were raised by the CWB and other grain-industry players. This has returned access to one of Canada’s key durum wheat customers and returned some stability back to the market.

November brought some modest strength to the canola market as strength in the US soybean complex, friendly technical signals and rumours of export interest supported prices. Tempering some of the gains were increased farmer selling, news the CN locomotive engineers issued a strike notice to the railroad effective the end of the month and the continued uncertainty surrounding export sales to China.

Favourable harvest weather at the beginning of the month pressured soybean futures’ prices lower as combines returned to the fields. By mid-month, prices rallied to 3-month highs with support from strong US crushing and export demand and lingering fears of field losses as heavy rains slowed harvest progress across the Midwest. The rally continued through to the end of the month as commercial demand supported prices. Fund buyers also became important players in the market on perceptions that demand for US soybeans would be greater than what the market expected. Strong demand from China and the absence of export competition from South America until 2010 was expected to keep prices supported.

Soybean meal futures’ prices declined early in the month on reports that quality concerns with distillers dried grains would be limited to only regional areas, but rallied by month end with support from soybeans. Prices were buoyed by demand strength, lingering tightness of cash meal supplies in the US Midwest and late strength in crude oil.

Improved harvesting weather weighed on corn futures’ prices early in the month but losses were tempered by strong demand and concerns about the US corn crop quality. Demand for corn came from rising energy markets’, offsetting some of the losses in demand from the pork and cattle sectors as the number of animals on feed is projected lower. Ethanol prices were up, making ethanol margins attractive. Corn futures’ prices stumbled by month’s end on harvest pressure and lack of fresh supportive news.

Field pea prices strengthened on increased export demand from Pakistan, India and China and firming prices in other commodities. Demand for pulses remained strong throughout the month as commercial supplies were drawn down and farmers continued to hold off selling more product. Demand for Canadian origin product was also supported by ongoing USDA PL-480 food aid demand, which kept splitting capacity in the United States booked.

Demand for all lentils strengthened in November as producers remained reluctant to sell. The recent rally in cash prices was attributed to export sales to India in nearby delivery positions. The summer, or kharif, season pulse crop in India was estimated to be much smaller than expected as lower yields more than offset increased seeded acres. Tur or pigeon pea production was projected to rise but output would still be below average. This was seen as positive for the large green lentil market which will moved into the higher priced pigeon pea market in Asia as a substitute. Green lentils also enjoyed solid demand from South American buyers as normal fall shipments to European destinations wound down.

International chickpea markets were supported by lack of farmer selling and tight supplies in most major exporting regions. Remaining stocks in Mexico continued to be kept out of the marketplace. Indian exporters remained absent from the market, instead buying Kabuli chickpeas from Argentina.

Sunflower oil prices continued to strengthen throughout the month as global production prospects further deteriorated. Increases in production estimates for Ukraine, Bulgaria, France and Romania were offset by significant downward production revisions for Russia and Argentina. Supplies were expected to be tight during the January to September 2010 period as a result. Sunflower oil prices have risen more than prices for soybean oil, rapeseed oil and palm oil, developing a premium in some markets, and are expected to increase further in the coming months in an attempt to ration demand.