Situation Report – December 2009

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Canadian production

On December 3, the final production report for 2009 was released based on Statistics Canada’s annual November Farm Survey of 27,900 farmers conducted from October 23 to November 16, 2009. Prairie farmers reported harvesting a smaller area of the major grains and oilseeds. In Eastern Canada, soybean production in Ontario rose to a near record high of 2.6 million metric tonnes.

The 2009 growing season was difficult for many Prairie farmers. Prolonged cool temperatures and a late frost in the spring negatively impacted seeding progression. As well, dryness in many western areas and excess moisture and flooding in eastern regions delayed crop emergence. Throughout the summer, cool conditions slowed crop development, leading to frost threats as harvest approached. However, sunny and dry weather in September allowed most crops to reach maturity with a substantial improvement in yield and quality. After rain and snow throughout much of October, November brought unseasonably warm weather, allowing farmers to finish harvesting most crops and to complete fall field work.

Canola production on the Prairies fell 6.5% from 2008 to 11.7 million metric tonnes as a result of lower harvested area. Manitoba and Saskatchewan reported modest production gains while Alberta reported a large decline. Canola production in Alberta was estimated to be 3.2 million metric tonnes, a decline of 26.9% from 2008, because of lower yields and harvested area. Manitoba farmers harvested a record 3.2 million acres of canola with a new high yield of 39.5 bushels per acre. As a result, production set a record at 2.8 million metric tonnes, an increase of 9.8% from the previous high set in 2008. Saskatchewan producers also reported record production and yield for canola. Production increased 1.7% from 2008 to reach 5.7 million metric tonnes while yield increased 7.4% to equal 34.8 bushels per acre.

Canadian farmers harvested 21.1 million metric tonnes of wheat excluding durum. This was an 8.6% decrease from 2008 but above the five-year average of 20.2 million metric tonnes. Harvested area was down slightly from 2008 and yield was 2.1 bushels per acre lower than the record high set in 2008.

Prairie durum wheat production decreased 2.2% from 2008 to 5.4 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 7.8%, or 460,000 acres, from 2008 to 5.5 million acres. Yield increased 5.8% from 2008 to 36.0 bushels per acre.

Soybean production in Canada was estimated at 3.5 million metric tonnes, an increase of 5.0% from 2008, as a result of near record production in Ontario. Quebec farmers harvested 4.0% more acres but produced 11.6% less soybeans. Harvested area was a record 588,100 acres. Production decreased from 600,000 metric tonnes to 530,000 metric tonnes. In Ontario, a record area of soybeans was harvested in 2009. Harvested area increased 14.3% to almost 2.4 million acres. Production went up 5.8%, from 2.5 million metric tonnes in 2008 to 2.6 million metric tonnes. Yield decreased 7.4%, or 3.2 bushels per acre, to 40.2 bushels per acre.

Feed grain production was down in all three Prairie Provinces as a result of declines in production of barley, oats and dry peas. Prairie farmers estimated production at 8.9 million metric tonnes of barley, 2.4 million metric tonnes of oats and 3.4 million metric tonnes of dry peas. Drought throughout much of Alberta and Saskatchewan, two significant hailstorms in Alberta and heavy October snowfall in Saskatchewan 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 United States Department of Agriculture (USDA) increased its projections for global wheat supplies as higher production estimates in Canada and EU-27 more than offset lower beginning stocks and production in Australia. Global wheat production was projected almost 2.0 million metric tonnes higher. Lower imports by Iran and lower exports by Australia and China resulted in global wheat trade estimates to be reduced to 124.7 million metric tonnes. Global consumption was also decreased, reflecting reductions in expected EU-27 feeding and in food use in India and the United States.

Global coarse grain supplies for 2009/2010 were estimated at 1,278.1 million metric tonnes. This was a 3.0 million metric tonne decrease over last month, mainly because of lower millet production in India. World corn production increased as a result of production increases in Ukraine while world barley production was raised because of increases for Australia, Canada and Belarus. A net decrease in world oat production was estimated as small reductions for production in Canada and Australia more than offset increases in Belarus.

Projections for higher Ukraine corn exports offset lower US corn exports while higher Australia barley exports offset lower EU-27 barley exports. As a result, the global coarse grain trade was nearly unchanged for December. Ending stocks for global coarse grains were down 0.8 million metric tonnes as projected stocks of mixed grains, millet, rye, barley and oats more than offset an increase in sorghum. World corn stocks remained nearly unchanged.

For the 2009/2010 crop year, global oilseed production was estimated to be 0.3 million metric tonnes lower at 428.6 million metric tonnes. Increases in world production of soybeans, rapeseed and cottonseed were greater than decreases in world production of sunflower seed and peanuts. Global rapeseed production was projected to be 59.4 million metric tonnes, as gains in Canadian production were larger than decreases in Indian production. Global sunflower seed production was estimated at 30.7 million tonnes because of lower production in Argentina and Russia. Other production changes included lower peanut production for China and India and higher cottonseed production for Pakistan.

Global oilseed trade was projected at 94.4 million metric tonnes. Global trade was increased by 0.7 million metric tonnes because of increased rapeseed exports from Australia and Canada and increased soybean exports from the United States.

Canadian government invests in pulse sector

The Government of Canada announced that it will invest up to $4.4 million dollars in the pulse sector in an effort to increase profitability for Canadian pulse growers. Funding will come through the AgriFlexibility and AgriMarketing programs, as part of Canada’s Economic Action Plan, and will support four new projects.

Up to $1.5 million will go towards the Marketing the Sustainability of Canadian Agriculture project, to potentially capture premium prices by marketing Canadian pulse products as environmentally friendly. The Pulse Health, Innovation and Commercialization project will receive up to $1.5 million to create and capture new opportunities for Canadian pulses in the growing markets for healthy and sustainable food. The Canadian Pulse Industry Transportation Initiative will benefit from up to $1.13 million to give the pulse and specialty crops industry better access to equipment and make more efficient and reliable transportation systems. Up to $308,250 will be available to help create new opportunities for pulse farmers through the promotion of pulses as important in health and environmentally-conscious markets.

Seaway ends 2009 navigation season

The navigation season on the Montreal/Lake Ontario section of the St. Lawrence Seaway came to a close on December 24, 2009. The Welland Canal portion of the St. Lawrence Seaway remained opened until December 26, 2009. Official closing date for the Sault Ste. Marie Locks will be January 15, 2010. Navigation on the St. Lawrence Seaway is expected to resume in March, 2010, depending on when the ice breaks up.

Flaxseed genome research funded

Saskatchewan Agriculture and Food pledged $1.2 million to a project to map the flaxseed genome. The Total Utilization of Flax Genomics (TUFGEN) project will investigate flaxseed performance by looking at the DNA sequence of the entire genome. The project is also expected to develop genetic and physical maps outlining the relationship of genes important for improving flaxseed usefulness. The goal is two-fold – to develop flaxseed as a dual-purpose crop and to sequence the flaxseed genome.

The Saskatchewan government also announced an additional $680,000 in funding to go towards another genomics project. Value Generation Through Genomics (VALGEN) will focus on removing restrictions related to the commercialization of new agriculture products and technologies. The project will explore the role of intellectual property, study ways of regulating and governing agricultural innovation and adapt and test engagement tools with the Canadian public to determine reactions to new technologies.

Ontario crushing plant on hold

Development of a soybean crushing plant in southwestern Ontario was put on hold until market conditions for biofuels improve. AGRIS Co-op and Suncor had proposed a $110 million plant in the Lambton-Kent area that would process corn and soybean oil with its key function being extracting oil from corn germ to streamline ethanol production. Demand for the facility and government support will be needed for plans to move forward.

Alliance Grain Traders buys Parent Seed Farms, Finora Inc.

Alliance Grain Traders (TSX:AGT) announced that it had entered into an exclusive, binding letter of intent to acquire all of the assets of Parent Seed Farms of St. Joseph, Manitoba. The assets include two processing plants, certain land and equipment. The purchase price was CDN$10 million, payable in cash and AGTI common shares. The transaction is scheduled to close on January 4, 2010.

Alliance Grain Traders also announced a deal to purchase Finora Inc., a British Columbia-based pulse export company, for an estimated CDN$8.4 million. Assets include two pulse and specialty crop processing plants at Wilkie, Saskatchewan, one plant at Assiniboia, Saskatchewan and one plant at Gibbons, Alberta, as well as land, equipment and bulk storage facilities.

Prices

The Canadian Wheat Board (CWB) announced final payments for 2008/2009 sales of wheat, durum wheat and barley. The final payments were dependent on class and grade delivered and ranged from $9.39 to $35.12 for wheat, $18.78 to $32.47 for durum wheat, $13.58 to $15.08 for designated barley and $80.15 for Pool B feed barley. Payments were made starting December 14 and represent the balance owing to producers after their grain had been marketed through the CWB, less administrative costs.

The CWB also announced that participant’s in the 2008/2009 CashPlus program for malting barley would soon receive an additional payment of $12.89 per tonne. Operating outside the CWB pool accounts, the CashPlus program offered farmers an upfront, market-based cash price for their malting barley based on negotiated sales prices and volumes with selecting companies. Selecting companies and producers then directly negotiated a contract between themselves. The additional payment was derived from any marketing spread between the upfront guaranteed cash price and actual CWB sales returns for malting barley, minus administrative costs. A total of 1,236 Prairie farmers sold malting barley through the CashPlus program in 2008/2009.

Despite 2009/2010 production estimates being higher than trade expectations, canola futures’ prices held steady, and even saw some small gains, at the beginning of December. Canola was supported by strong crusher demand and slow farmer selling. News that a vessel was being loaded in Vancouver buoyed prices as rumours circulated that the canola may be destined for China. Ample supplies, a firming Canadian dollar and slowing demand leading into the holiday season weighed on the markets, causing canola to give back some of its earlier gains.

Soybean futures’ prices continued to be supported by speculative buying as a lower US dollar, higher crude oil futures and strong export demand supported the market. The US Labour Department’s announcement that the US unemployment rate had dropped in November caused some speculative selling as the US dollar rose sharply and gold and crude oil futures and US equities tumbled. Profit-taking trading pressured soybean futures’ prices down but was limited by strong world soybean demand. Prospects for tightening 2009/2010 US soybean ending stocks also lent support to the market. By mid-month, the market had started to transition into the holiday slowdown with declining trading activity.

Corn futures’ prices started the month weaker as large supplies, weak demand and the absence of investment fund money weighed on markets. Weather problems early on provided only mild support as most of the harvest was seen as complete. Support returned to the market as a snowstorm blanketed the Midwest, halting harvest and bringing concerns about poor quality in the remaining fields. Additional support was generated from weakness in the US dollar and spillover strength from soybean and wheat futures.

Better-than-expected jobs data rallied the US dollar, weighing on Chicago Board of Trade (CBOT) wheat futures’ prices at the beginning of December. Losses in the CBOT corn and outside gold and crude oil markets also pressured prices lower. Slow export demand and large world wheat supplies limited any upside potential in the market. The higher US dollar made US wheat too expensive on the world market, causing traders to move away from the market. Mid-month gains in corn and soybeans futures and weakening of the US dollar rallied CBOT wheat futures’ prices. The weaker US dollar made US grains cheaper to overseas buyers again, supporting prices despite lower-than expected wheat exports.

North American lentil markets remained strong as steady export demand and limited grower selling continued to support the market. Trading turned light as the holiday period approached but prices remained little changed. Severe winter weather across Western Canada and the United States further limited grower selling. Traders turned their attention to India’s rabi season development and pending harvests in Turkey and Australia. Despite heat waves affecting crop development, Turkey and Australia are both expected to produce more lentils than in previous years. Supplies will be available for shipment in December/January and could weigh on markets.

Dry pea markets in North America continued to be supported by ongoing USDA PL-480 food aid demand and concerns over India’s rabi season harvest. Conflicting reports on the size and quality of India’s winter pulse harvest added uncertainty to the market. The kharif season pulse harvest was down over 800,000 metric tonnes from the previous year. Traders did not believe that the rabi season harvest would be large enough to offset this decline, despite optimistic reports from the Indian government. Yellow peas could see some increased demand as a less-expensive substitute product during the January to July shipping period.

Despite a smaller than expected Canadian canary seed crop, prices remained stagnant throughout the fall period. Export demand declined, preventing any strengthening in prices. Mustard seed markets continued to hold steady in light trading activity as buyers worked through previously contracted mustard supplies.