Situation Report — March 2010

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US and World supply

The United States Department of Agriculture (USDA) released revised global supply and demand estimates on March 10.

Global wheat ending stocks for 2009/2010 were projected to be 2.1 million metric tonnes higher than February estimates as a result of higher opening stocks in Russia and higher production in Argentina. Global imports and exports were also raised to reflect the pace of reported shipments to date. An increase of 1.2 million metric tonnes was made to global wheat consumption. Wheat feeding in China was raised 1.0 million metric tonnes while food use in India was raised 0.8 million metric tonnes. Partly offsetting the increases was a reduction in US food use. Global ending stocks were projected to be 0.9 million tonnes higher as larger stocks in Russia and the United States were only partly offset by reductions elsewhere.

An increase of 5.7 million metric tonnes was made to global coarse grain supplies for 2009/2010, mainly due to larger global corn supplies. World production was raised 4.7 million metric tonnes. Corn and sorghum production were increased while barley, rye and mixed grain production were lowered. Argentina and South Africa saw the largest changes in corn production estimates as harvested area and yield were raised. Abundant soil moisture and lack of stressful heat the last few months supported crops through the critical stages of development. Lower Indian and US corn production estimates offset some of the increase. Global coarse grain imports and exports were largely unchanged. Instead, major shifts among exporters reflected the larger corn supplies in Argentina and South Africa. World consumption of coarse grains and corn, in particular, were little changed, raising ending stocks with the increase in production.

World oilseed production was projected at 435.3 million metric tonnes for 2009/2010. This was a 1.6 million metric tonne increase from February estimates. Higher estimates for soybeans, peanuts, rapeseed and palm kernel were only partly tempered by lower cottonseed and sunflower seed production. Brazilian soybean production was estimated to be a record 67 million metric tonnes based on higher yields and harvested area. Global oilseed ending stocks were raised to 71.8 million metric tonnes. Soybeans accounted for most of the change as a result of increases for Argentina, Brazil and India.

Viterra to acquire pasta company

Viterra Inc. signed a merger agreement with Dakota Growers Pasta Company, Inc., a leading producer and marketer of dry pasta products in North America. Under the terms of the agreement, a subsidiary of Viterra will purchase all outstanding shares of common stock of Dakota Growers at a price of $18.28 per share and all outstanding shares of Series D preferred stock at a price of $0.10 per share. Approximately 12.0 million shares of common stock were issued and are outstanding on a fully diluted basis and approximately 11.3 million shares of Series D preferred stock were issued and are outstanding. The agreement represents a total value of US$240 million, including equity value and anticipated net cash/debt at closing.

Dakota Growers, located in Carrington, North Dakota, operates one of the largest durum mills in North America and is the third largest producer and marketer of dry pasta products, primarily supplying the ingredient, food service and private label retail markets. The company owns a production plant in Carrington, North Dakota and a pasta production plant in New Hope, Minnesota. Durum milling capacity is 1,000 metric tonne a day with annual pasta output of 560 million pounds processed through 14 production lines.

Canadian government invests in canola and flax

Agriculture and Agri-Food Canada (AAFC) announced $14.5 million in funding for agronomic and nutrition research under a new Canola/Flax Agri-Science Cluster as part of the government’s “Growing Forward” initiative. The funding will be matched by industry and farmers for a total budget of nearly $20 million. The cluster will fund production, oil and meal studies that are not already covered by the private sector.

Production research will target ways to improve crop establishment, nutrition and protection; harvest and storage management; integrated crop management; and sustainability. Nutrition studies will look at canola and flax oils’ impact on heart disease risk markers, the effect of canola oil on the prevention and treatment of insulin resistance, inflammation and obesity, the influence of canola oil on glycemic control and heart diseases risk factors in people with Type II diabetes, and the effect of canola oil on blood vessel function in people with healthy and compromised arteries. Canola meal research will focus on the best formulations for dairy milk production, on the impact of high levels of different types of canola meal in swine and poultry feeds, and on improving the carbohydrate composition and energy content of canola meal.

An additional $4.6 million was pledged by the government to support the Clubroot Risk Mitigation Project. This project will identify best management practices and breed clubroot-resistant canola varieties.

CWB celebrated half-century of trade with China

The Canadian Wheat Board (CWB) celebrated nearly 50 years of trade with China as Canada and China mark the 40^th anniversary of diplomatic relations. Wheat trade between the two countries began 50 years ago in the midst of a great famine in China. The CWB became one of the first foreign traders to deal with the new People’s Republic of China. Since that time, more than 120 million metric tonnes of wheat and barley have been exported to China – enough to produce 279 billion loaves of bread and 55 million bottles of beer.

While wheat continues to be important, exports of malting barley have now become a significant part of trade. China is the world’s largest beer producer, brewing more than 43 billion litres a year. China is also the largest importer of Western Canadian malting barley, averaging 386,000 metric tonnes a year over the past ten years.

The growing affluence in China has created a niche market for premium wheat flour. The CWB is working with the Guchuan Food Company to brand Canadian Western Red Spring wheat. Dumpling flour made from the wheat is being distributed in bags and gift boxes designed jointly by the CWB and Guchuan.

The CWB opened an office in Beijing in 1994, one of only two CWB offices located outside of Canada.

Spring road bans in effect on Prairies

Spring road bans were put into place across Western Canada as temperatures warmed up. The annual restrictions set axle weight limits for vehicles moving on designated roads as a measure to reduce the damage heavier loads can cause during the spring thaw period. The lengths of the restrictions depend on local weather conditions, but typically are in effect through April and into May.

In Alberta, spring road bans ranging from 75% to 90% of normal axle weights came into effect for numerous roads. Saskatchewan weight restrictions were implemented in the southwestern part of the province on March 1. The zone expanded across the province in the following weeks. In Manitoba, spring road bans came into effect on March 18 in the southern part of the province and one week later in the more northern regions. Level 1 restrictions consist of 90% of normal loading while Level 2 affected roads are 65% of normal axle weight.

Parrish and Heimbecker, Limited to invest in new bean facility

Parrish and Heimbecker, Limited (P&H) announced plans to invest in a new state-of-the art, dry edible bean processing facility in Hensall, Ontario. The multi-million dollar food-grade facility will incorporate progressive design elements that will protect product integrity while simultaneously minimizing energy consumption. The facility has been designed to exceed typical food quality standards through HACCP certification and rigid product identity preservation, offering traceability from ‘farm to plate’. The processing facility will also be able to deliver freight savings to end use customers by exploiting supply chain advantages.

Flax Council of Canada announces industry stewardship program

The Flax Council of Canada (FCC) announced a revised domestic stewardship program, allowing producers the option to use farm saved seed under rigorous sampling and testing procedures. While the best option remains the planting of certified seed that has tested negative for the genetically modified CDC Triffid, producers have a second option available.

The new industry stewardship program allows producers to use their own non-pedigreed seed for planting provided it first undergoes the same intense sampling and testing procedures as those used for certified seed being tested for CDC Triffid. A two kilogram sample, representative of a lot not exceeding 20 metric tonnes, must be submitted to an approved laboratory for seed testing purposes. There will be no threshold level of CDC Triffid acceptable for planting seed. Only seed that has tested negative is to be used for seeding purposes for 2010. The negative lab report must be retained by producers and will be a requirement for sale into the European Union market.

Changes were made to the stewardship program after additional varieties of flaxseed were found to contain trace amounts of CDC Triffid, raising concerns of a shortage of certified seed for the upcoming planting season. Extensive testing of three registered varieties, CDC Bethune, CDC Sorrel and CDC Sanctuary, has shown trace levels of genetically modified material below 0.01%. Two varieties, CDC Normandy and CDC Mons, had already been found to be contaminated.

Prices

The Canadian Wheat Board (CWB) released its March Pool Return Outlook (PRO) for the 2010/2011 crop year on March 25. Wheat values decreased between $14 and $16 per metric tonne from last month for all grades and classes. Durum wheat also decreased, with values being $10 to $14 per metric tonne lower. Malting barley declined $8 per metric tonne from the February PRO while feed barley was down $7 per metric tonne.

On March 12, the CWB increased the 2009/2010 initial payments for all classes and grades of designated barley by $26.50 per metric tonne. Initial payment for Select CW 2-Row Designated Barley increased to $186.50 per metric tonne while payment for Select CW 6-Row Designated Barley was raised to $166.50 per metric tonne.

Corn futures traded in a narrow range during the month as weather, supplies and outside commodities influenced the market. Heavy snow pack throughout much of the US corn growing area brought concerns of delays in early planting and of potential spring flooding. Markets were supported by these concerns early in the month, limiting downside price risk. Increased projections for 2009/2010 carryout erased any concerns by mid-month about planting delays leading to a smaller crop for the next crop year. Ample supplies and slow export demand weighed on markets, keeping the trading range narrow as the month progressed. A generally stronger US dollar and lower crude oil futures also limited any price gains. By the end of the month, forecasts for warmer and drier conditions in the Midwest took away the threat of potential planting delays, adding to the lower tone in the market.

The Chicago Board of Trade (CBOT) wheat futures continued to be plagued by ample world supplies and slow US export movement. The strong US dollar kept US wheat too expensive to be competitive on the world market as competition for export business remained tight. The market found some support early in the month from potential spring flooding problems and the resulting planting delays. However, the support was lost as drier weather forecasts reduced flood threats.

A record projected South American soybean harvest and concerns about future Chinese demand as the country attempts to slow inflation continued to limit upside movement in CBOT soybean futures’ prices. Industry forecasts for increased 2010 US soybean acres and weakening cash basis levels as the South American harvest progressed also weighed on prices. Providing support to the market were optimistic outlooks for export demand amid logistical problems in South America. Reports of bottlenecks at ports in Brazil circulated throughout the marketplace. Port workers in Argentina had staged some strikes as harvested started; however, the market reaction was minimal as the strikes have become a common occurrence during the harvest season over the past few years. Also providing support to soybean futures’ prices were reports of wet South American weather conditions slowing the harvest and slow movement of cash supplies in the United States, Brazil and Argentina. Forecasts for drier conditions in some of Brazil’s wettest areas and a weaker Brazilian real returned a bearish tone to the market at the end of the month.

Canola futures at Intercontinental Exchange (ICE) Futures Canada remained range bound throughout March. Nearby futures looked cheap relative to other competing oilseed markets, including palm oil and soybeans. Prices were supported by steady exporter demand and strong domestic crush demand. Upside potential was limited by the advancing South American soybean harvest and large global oilseed supplies. Also adding to the downward pressure was the potential for increased canola area in Western Canada and higher soybean acreage in the United States. The firmness in the Canadian dollar limited gains as canola became less attractive on the export market and domestic crush margins weakened. Steady hedge selling by grain companies also weighed on prices. Spring road restrictions in Western Canada came into affect in March, impacting farmer selling into the cash markets. The lower available supplies added some support to the market.

Edible pea prices continued to decline in March. Poor demand and a potentially larger than expected carryover kept the market quiet. Markets in the United States were supported by a USDA purchase of 9,000 metric tonnes of split yellow peas for shipment in April. The price weakness was attributed mainly to India’s decision to implement a domestic anti-hoarding policy, forcing India’s importers to empty their bins and flood the domestic market with edible peas. The international market received good news when India announced that it will allow duty free pulse imports for at least another year. The ban on pulse exports was also extended until March 31, 2011. Weighing on the market was the potential for higher pea acreage in Western Canada.

Lentil markets held steady in relatively light trading activity throughout the month as the short term needs of processors and exporters exceeded grower selling. New crop prices have come under pressure as US processors started to aggressively forward contract new crop supplies. North American lentil acreage is expected to increase this spring despite the lower prices. There were some early worries about the Canadian crop prospect for 2010 because of poor subsoil moisture in western Saskatchewan and Alberta and low snowfall accumulations during the winter.

Prices for mustard seed remained low because of an absence of demand from the European Union (EU), Canada’s main mustard market. Increased production in the EU has offset some of the need for Canadian-origin product. The market is also coming off a cyclical high for Canadian mustard prices after a few years of tight supplies. The larger supply from the 2009/2010 crop year will continue to pressure prices down into the new crop year.