Situation Report – January 2010

View the most recent version.

December 2009 Canadian grain stocks

On December 31^st, total stocks of most major grains and oilseeds were down from previous year levels. Total stocks generally fell as a result of production difficulties throughout the 2009 growing season. Farm stock data were obtained from a Statistics Canada survey of farmers conducted from January 4 to 11, 2010 while commercial stock data were obtained from the Canadian Grain Commission and from Statistics Canada surveys of commercial enterprises.

Stocks of wheat, excluding durum were 1.1 million metric tonnes less than the same time last year as a result of increased exports for the fall shipping period. Production was also lower than in 2008, adding to the decrease in December stocks. Stocks of durum wheat at December 31, 2009 increased for a second year in a row. Large global stocks weighed on prices and slowed import demand, especially from North Africa. The Canadian Wheat Board increased its export target for the 2009/2010 marketing year to 18.7 million tonnes, as a result of higher-than-expected production after a challenging growing season. The export program consists of 13.5 million tonnes of wheat, 3.5 million tonnes of durum wheat and 1.7 million tonnes of barley.

A reduction in production of just under 1.0 million metric tonnes resulted in barley stocks at December 2009 declining by 830,000 metric tonnes compared to December 2008. Large North American corn production numbers and smaller livestock numbers pressured barley prices lower and limited movement. Drought in Alberta and Saskatchewan throughout the summer hampered hay production, encouraging more barley to be cut for greenfeed.

Canola stocks remained high at December 31, 2009 as a result of slower export movement and decreased domestic crushing. China required all Canadian canola imports to be certified free of blackleg beginning in November 2009. All movement to China temporarily stopped as Canadian exporters struggled to meet the new requirements. Domestic crushers continued to operate at less than full capacity after the United States Food and Drug Administration (FDA) refused shipments of Canadian canola meal after finding they contained the bacteria salmonella.

In December 2009, stocks of flaxseed rose to the highest December 31^st level since December 2006. Strong prices encouraged an increase in production. In September 2009, markets in the European Union (EU) were closed to Canadian flaxseed after the GM variety FP967, or CDC Triffid, was found in commercial products and traced back to Canadian-origin product. The EU had a zero-tolerance for GM flaxseed as no variety had ever been submitted to the governing body for approval. The Canadian flaxseed industry has worked with the EU to determine an allowable tolerance level of 0.01% for future shipments; however, exports have not yet recommenced. The European Union is Canada’s most important market for flaxseed.

Corn stocks declined from December 2008 by almost 780,000 metric tonnes to levels comparable to the 2005/2006 and 2006/2007 marketing years. Cool, wet weather during harvest in Manitoba and Ontario affected both yield and quality, limiting production in both provinces. Some corn remains in the field and will be harvested in the spring. Good prices encouraged producers to sell corn into the domestic market, especially lower grade and high moisture corn.

Stocks of soybeans increased from December 2008 as production increased by almost 170,000 metric tonnes. Exports were also higher while domestic use was only slightly behind 2008.

Dry pea stocks rose from December 2008 with higher on-farm and commercial stocks. Exports were down for the first five months of the marketing year as a major destination for Canadian dry peas remained out of the market. The Indian government, in an attempt to control food inflation, implemented regulations limiting the amount and length of time that pulse stocks could remain in storage. Pulses flooded the domestic market as trading companies liquidated their supplies, limiting the demand for new tenders. State-run agencies are expected to return to the market soon to meet shortfalls in Indian production and to control food prices.

Despite record production, stocks of lentils at December 2009 increased by less than 150,000 metric tonnes over the previous year. Strong sales to India boosted exports above trade expectations as the country tried to minimize food inflation. Green lentils were being used as a substitute for higher priced pigeon peas, a staple in the Indian diet. Good demand from Middle Eastern and Asian countries helped to support export movement for red lentils.

Slow export movement kept mustard seed stocks higher than experienced in the previous two years. Low prices and complications with the European market, Canada’s main mustard destination, pressured exports lower. Stocks of canary seed continued their downward trend as smaller production reduced available supply at December 2009. Poor quality and low exports combined to increase on-farm stocks of sunflower seeds over December 2008 despite lower production.

US and World supply-demand

In its latest supply and demand estimates, the United States Department of Agriculture (USDA) increased its projections for global wheat supplies by 2.5 million metric tonnes to 961.2 million metric tonnes as a result of increased production in Russia. Russian production was raised 2.2 million metric tonnes. Production in Brazil and Argentina was also raised based on estimates from government statistical agencies in the respective countries. Wheat exports for 2009/2010 were reduced by 1.5 million metric tonnes. Increases in imports for Afghanistan, Egypt, China and Kenya were not large enough to offset decreases in imports for EU-27 and Mexico and lower exports for the United States. As a result, global ending stocks of wheat were projected to be 4.7 million metric tonnes higher. Larger ending stocks were projected for the United States, Russia, Egypt, Brazil and Argentina.

Higher production of corn, barley and mixed grains were expected to more than offset lower production for sorghum, millet and oats. Global coarse grain production was estimated to be 4.7 million metric tonnes higher than last month’s estimate. A larger-than-expected US corn crop led to an increase of 6.3 million metric tonnes in world corn production. Argentina’s production was also raised as widespread rainfall encouraged producers to extend the growing season and adequate soil moisture improved yield prospects. Mexican corn production was lowered, however, because of reports that droughts in July damaged crops in the southern plateau more than previously thought. Barley production was estimated to be higher in Kazakhstan and EU-27 while millet and sorghum production in India decreased on reports of lower yields.

Global oilseed production for 2009/2010 was increased to 431.6 million metric tonnes from previous estimates because of higher soybean, peanut and cottonseed production. Favourable planting conditions led to higher projections for Brazil’s soybean production while US production was also raised to record high level of 91.5 million metric tonnes. Global production of soybeans was projected at a record 253.4 million metric tonnes as a result. Lower production estimates for Argentina and EU-27 reduced global sunflower seed production. Other changes included increased cottonseed production for China, lower cottonseed production for Australia and increased peanut production for Senegal.

Flax industry urges use of pedigree seed

Over 3000 samples of flaxseed have been sent in to the eight approved laboratories to be tested for the presence of the GM variety FP967, or CDC Triffid. Of those samples, 889 samples have been completed. Results showed that 9 samples were positive for CDC Triffid at the 0.01% level while 45 samples were positive below the 0.01% level, or contained trace amounts. The distribution of the positive samples was widespread, making it harder to pin point a source of contamination.

Two breeder seed samples from the Crop Development Centre at the University of Saskatchewan tested positive for trace amounts of CDC Triffid. All pedigreed seed stocks of CDC Mons and CDC Normandy will be removed from the seed system and disposed of. Fortunately, both varieties represent only a small portion of the pedigreed flaxseed market and were almost on their way out of use. All pedigreed flaxseed will need to be tested for trace amounts of genetically modified seed before it can be sold. Any lots with positive results will be removed immediately from the seed market and sold into commercial markets.

In an attempt to regain their largest market, the Canadian flax industry has been encouraging producers to use only certified seed for the 2010 crop. Many commercial grain handling companies were also close to establishing a requirement for proof that all flaxseed crops delivered to commercial grain handling facilities in the fall of 2010 were grown with certified seed.

Mustard seed exports to the European Union have come under pressure as a result of the GM incidence in flaxseed. Canadian products have been put under increased scrutiny and have been undergoing more testing by importing companies, end-users and non-governmental organizations such as Greenpeace. Europe is an important market for Canadian brown mustard with over 80% of Europe’s needs being supplied by Canada each year.

Government invests in barley, canola

The Government of Canada announced a $400,000 investment in the Canadian Malting Barley Technical Centre (CMBTC) in Winnipeg through the AgriMarketing program. The investment will help the Centre in its efforts to promote Canadian malting barley to international customers. It will evaluate and promote new varieties that Canadian growers can plant and export to niche markets around the world. Key markets in Taiwan and China will be targeted. The project will also provide export and technical support for Canadian producers. The CMBTC is a non-profit organization that provides education, training, research and technical marketing support for Canadian malting barley to both domestic and international customers.

Through the Agricultural Flexibility Fund under Canada’s Economic Action Plan, Agriculture and Agri-Food Canada announced its support for the Canola Market Access Plan (MAP) 2015 with an investment of $7.8 million. The Canola MAP 2015, through the work of the Canola Council of Canada, will include a comprehensive long term strategy, a Rapid Response Plan to be used when market access is at risk and plans for specific markets. It will also include an extensive information program designed to ensure producers understand their role in ensuring that their production is export ready. The Canola Council of Canada will contribute another $1.2 million for a total project budget of $9 million.

Prices

Corn futures’ prices on the Chicago Board of Trade (CBOT) were supported by fund buying, increased usage for ethanol, light farming selling and high crude oil prices early in the month. USDA’s production report on January 12 pegged US corn production at 334.1 million metric tonnes, an increase of 5.8 million metric tonnes from December estimates. Futures’ prices were pushed lower as the market tried to absorb the news. Corn remained under pressure as the month ended because of a strong US dollar, weaker crude oil prices and equities markets and fund selling. The large 2009 crop, expectations of higher acreage in 2010 and questionable demand all weighed on the market.

Speculative buying returned to the soybean futures market on the CBOT at the beginning of January as weakness in the US dollar and strength in crude oil and gold futures fuelled gains. News that China had raised a key interest rate stalled gains amidst fears of slowing Chinese demand. The favourable outlook for a record large South American soybean crop and a firmer US dollar pressured futures’ prices lower mid-month. Prices continued to trade at three-month lows under outside market influences. The combination of broad asset class losses, fears of declining fund buying because of possible tougher regulations on US banks and bearish supply fundamentals put downward pressure on soybeans. Solid weekly export sales, lower-than-expected acreage estimates for 2010 and reports of hotter and drier Argentina crop conditions helped to support the market somewhat and limit downside risk.

US wheat futures’ prices rallied early in the month as index fund buying returned to the market to rebalance positions. However, the overall trend remained lower as large supplies continued to weigh on the markets. A firm US dollar added downward pressure as a strong dollar makes US wheat less attractive to foreign buyers. USDA raised its forecasts for US and world wheat ending stocks, causing futures’ prices to further tumble. Weighing on the markets was President Obama’s push for bank reforms that could pull fund money out of grains. Strong weekly US wheat exports helped to limit losses, although traders were looking for longevity in the numbers to verify an improved demand trend.

Canola futures’ prices on ICE Canada continued to experience losses as slower demand, increased farmer selling and bearish technical signals triggered speculative selling. Crush margins weakened mid-month, adding to losses in canola. Any gains on technical rallies and a lower Canadian dollar were limited by the potential for a record South American soybean crop. Large US soybean supplies also weighed on prices.

Lentil prices remained well supported by firm export demand and lack of competition from international markets. Canada continued to be the main source for lentils after Turkey had a shortfall in its production and the Australian crop was not as good as expected. Demand from Iran, Turkey and the Mediterranean market kept movement steady as India moved out of the market temporarily.

Rising food prices prompted the Indian government to take action in an attempt to control them. The government announced the sale of federal stockpiled grains in the next two months and extended a deadline for tax-free imports of white sugar. It also extended the subsidized sale of edible oils and asked state-run agencies to increase the imports of pulses. India is the largest consumer and producer of pulses. An estimated two million metric tonne deficit in pulses for the crop year ending June 2010 increased the prices of unprocessed pigeon peas by more than 50%. Large green lentils could be used as an inexpensive substitute, driving demand up in the next few months for Canadian supplies.

Dry pea prices held steady throughout the first half of the marketing year as exports continued to be slow. India remained out of the market as domestic demand was covered by stocks held in storage by the private sector.

Declining demand from import buyers kept canary seed prices steady despite a decrease in production in Western Canada. Mustard prices were also unchanged as difficulties exporting into Europe plagued the market. Recent genetically modified organism contaminations in flaxseed have forced exporters to be more stringent with product segregation and end-user specifications.