Situation Report — June 2010

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Western Canada under water

Western Canada started the spring earlier than normal amid drought concerns across much of the region. Heavy rainfall beginning at the end of May changed the outlook and now much of the area is under water.

A series of severe storms at the end of May and throughout June dropped large amounts of precipitation over most of Saskatchewan and Manitoba, causing overland flooding, washed out roads and basement flooding. More than double the annual average rainfall has been received in some areas since April 1^st. Flood watches had been issued in many watersheds as run-off filled creeks and rivers and swelled their banks.

Alberta enjoyed moderate rainfall in May as the precipitation replenished soil moisture reserves drained after two years of drought. However, by mid-June, the situation turned to excess as parts of southeastern Alberta received over 150 millimetres of rain during the weekend of June 19^th. Flash flooding closed a stretch of the Trans Canada highway between Medicine Hat, Alberta and Maple Creek, Saskatchewan as 600 homes were put on alert and 230 homes were placed on voluntary evacuation notice.

The early spring allowed farmers to get a good start on spring seeding. By the end of May, Manitoba and Alberta seeding was between 80% and 90% completed while Saskatchewan was 70% done. Since that time, however, very little progress had been made.

Manitoba farmers seeded approximately 95% of intended acres for the year, although some areas saw significantly higher unseeded acres. In southwestern Manitoba, between 15% and 30% of the intended acres were unseeded by the June 20^th crop insurance deadline, according to Manitoba Agriculture, Food and Rural Initiatives (MAFRI). Northwestern Manitoba had approximately 15% of acres unseeded. Stress from excessive moisture was evident throughout most of the province as standing water remained in many fields. Yellowing of plants, poor root development, dead plants and premature bolting were being reported in both early and late planted crops. Uneven crop growth and wide ranging development were also being reported. Evidence of diseases, including leaf rust and tan spot in cereals and sclerotina in canola, was being found already.

Six rural municipalities in Manitoba called local states of emergencies and one additional municipality is under an emergency prevention order. Manitoba has a total of 120 rural and urban municipalities. A flood warning was still in effect for the Assiniboine River Valley from Shellmouth to Brandon. Water levels were expected to remain above average in southern Manitoba for several weeks. The Red River Floodway at Winnipeg continued to operate as water levels on the Red River from Emerson to Morris were not expected to change much because of water from rain which fell in the United States.

The Saskatchewan Crop Insurance Corporation extended spring seeding deadlines to June 20^th in response to the rain-related delays. However, Saskatchewan producers still only managed to plant 76% of intended acres. Unseeded acres ranged from 50% in the northeast to 4% in the northwest. The eastern side of the province has had the most difficulties with finishing seeding as thunderstorms prolonged flooding in many areas. Crops were showing signs of stress from excess moisture. Cutworm, wireworm and gopher damage, leaf diseases and root rots were also being reported.

Out of 297 municipalities, forty have already been designated for funding under the Provincial Disaster Assistance Program (PDAP) for municipal and/or private damages. Additional municipalities have been applying as the rains continued. Most regions of Saskatchewan have received more rain in the last two months than would be typically received in a year. In addition to applying for PDAP funding, 33 municipalities in Saskatchewan’s District 4 area (Southwest Saskatchewan) have applied for agricultural disaster funding.

Alberta Agriculture and Rural Development estimated that 95% of intended acres have been seeded in the province despite the wet weather. The remaining unseeded acres were expected to end up as summerfallow or barley for feed production. Soil moisture reserves ranged from good to excessive in the southern and central regions. Rain was still needed in many northern areas of the northeast and northwest regions and southern and central regions of the Peace Region. Crops were mostly in good condition, although development was behind normal because of cool temperatures and delayed seeding. In the southern region, excessive moisture was causing yellowing of crops in low-lying areas.

Ontario crops progressing well

According to the Ontario Ministry of Agriculture, Food and Rural Affairs (OMAFRA), Ontario crops are generally in good condition. Much of the corn across the province was at or beyond the 8 leaf stage. Some areas were lagging behind in development significantly because of later planting and saturated soils. Producers have been attempting to sidedress nitrogen but have been delayed by frequent rains.

Many soybean fields that were planted in late May were yellow in colour, signalling the period just before the nodules start to supply adequate nitrogen to the leaves. However, excess moisture and rapid leaf growth have made soybeans more yellow than usual in some cases.

The majority of the winter wheat crop was in the late milk stage and about four weeks from harvest. In the southwest, advanced wheat was in the dough stage. Fusarium head blight was just beginning to show in some fields at trace to low levels.

Early planted edible beans were generally looking goods. Some replanting due to variable emergence had occurred in fields planted near the end of May prior to the start of wet weather. Approximately 20% of the edible bean crop remained to be planted.

United States and world supply and demand

On June 10^th, the United States Department of Agriculture (USDA) released updated estimates for the 2010/2011 crop year.

Global wheat supplies were estimated to be 4.1 million metric tonnes less than last month as a result of reduced carry-in and production. Beginning stocks were reduced for the European Union (EU) 27, the United States and Brazil because of higher exports during the 2009/2010 crop year. Global production was lowered by 3.7 million metric tonnes. EU-27 production was expected to be 2.1 million metric tonnes lower than initial estimates because of crop damage from recent flooding and heavy rains in Eastern Europe and from April and May dryness in Northwest France and the United Kingdom. Widespread outbreaks of yellow rust in Syria and Turkey reduced yield prospects in key growing areas while higher-than-expected winter kill in Russia decreased production estimates.

For the 2010/2011 marketing year, global wheat trade was expected to be higher by 2.0 million metric tonnes. Imports were increased for Syria, Turkey Afghanistan and Bangladesh. Exports were raised for Kazakhstan, Australia, Ukraine and India. Projected world wheat consumption was nearly unchanged at 668 million metric tonnes.

Lower than expected corn carry-in in the United States led to a 5.3 million metric tonne decline in global coarse grain supplies for 2010/2011. Global production was reduced by 1.4 million metric tonnes to 1.1 billion metric tonnes as higher corn production was more than offset by smaller estimates for barley, rye, oats and mixed grains.

Global corn trade projections were raised for 2010/2011. Imports by Mexico, Vietnam and the Philippines were expected to be higher while exports were increased for Argentina and Ukraine. Global corn consumption was estimated to be 4.0 million metric tonnes higher than previous estimates because of higher use in the United States and increased corn feeding in Ukraine and Vietnam.

World oilseed production was estimated to by 440.2 million metric tonnes for the 2010/2011 crop year. This was an increase of 0.3 million metric tonnes over May’s estimate. Higher peanut production was the main cause of the increase. EU-27 rapeseed production was reduced by 0.5 million metric tonnes because of flooding in May, especially in Poland. Other changes included increased soybean production for Ukraine and decreased soybean production for China.

Viterra acquires United States processor

Viterra, Inc. acquired 21^st Century Grain Processing, a United States-based processor of oats, wheat and custom grains, for US$90.5 million. The company operates two plants in the Central United States, an oat mill in South Sioux City, Nebraska and a wheat mill near Amarillo, Texas.

The Nebraska plant has a 62,000 metric tonne storage capacity and can process up to 295 metric tonnes of commercial oat products per day. The facility also manufactures coated grains and dusters used in foods such as granola bars and ready-to-eat breakfast cereals and snack foods.

The wheat milling facility in Texas has an 82,000 metric tonne storage capacity and can process up to 255 metric tonnes of flour per day. It produces products such as whole wheat, bakery and tortilla flour.

Manitoba flaxseed straw processing company to expand

Scheitzer-Maudit Canada (SMC) received $485,000 from federal and provincial governments for an expansion of its flaxseed processing plants in Carman and Winkler, Manitoba. A total of $385,000 comes from the Advancing Agri Innovation Program under the Canada-Manitoba Growing Forward Initiative. An additional $100,000 was received from the Province of Manitoba through Manitoba Entrepreneurship, Trading and Trade’s Technology Commercialization Program. The National Research Council also contributed $150,000 to the project. SMC will be matching the government funds, up to $485,000.

There are three SMC facilities in southern Manitoba that process flaxseed straw from Manitoba, Saskatchewan and North Dakota. Products produced include bast fibre for paper and flax shives for horse bedding, soil erosion control and biofuel. Flaxseed fibre can also be substituted for fibreglass and other petroleum-based products in some applications to help lower carbon footprints.

Prices

The Canadian Wheat Board (CWB) released updated Pool Return Outlook (PRO) for the 2010/2011 crop year on June 24. Wheat values ranged from an increase of $6 per tonne to a decrease of $1 per tonne for all grades and classes. Durum wheat, malt barley and feed barley values were all unchanged.

Despite ongoing weather problems in Western Canada, the global wheat supply remains large for the upcoming crop year. Projections remain for another record production year. Growing conditions remain good to excellent in the United States, the European Union, Ukraine, Russia, Argentina and Australia. According to the CWB, weather-related problems in world wheat production are needed to make the market more bullish.

Winnipeg canola futures were supported by planting delays and concerns about damage to canola crops from excess moisture throughout the month. Steady crusher demand and pricing of old export business also helped to underpin prices. Producers were reluctant to deliver into the cash market as weather problems continued. Gains were limited by a strong Canadian dollar and lack of fresh export demand. By the end of the month, exporters and domestic crushers were starting to show some reluctance to buy at higher levels.

Chicago soybeans were also influenced by weather concerns as the month started out with record high crop ratings and ideal near-term weather. By mid-June, continued rains brought worries of delays in US soybean plantings and of threats to the quality of young plants. Spill over support was also felt from concerns about the Canadian canola crop. The tight availability of nearby supplies as producers were reluctant sellers and fresh demand news also supported prices. Outside markets added strength to the market as the US dollar and equities and energy markets all weakened as the month progressed.

Wheat futures continued to struggle from a lack of supportive news. Weighing on prices were the advancing United States winter wheat crop, large United States and global wheat supplies and slow export demand. By the middle of June, concerns about Canada’s production potential seeped into the markets. Hard red spring wheat prices on the Minneapolis Grain Exchange (MGE) found some support from the potential weather risks to the developing spring wheat and talk of planting delays in Western Canada.

Chicago Board of Trade (CBOT) corn futures’ prices were pressured downward by excellent central United States growing conditions and improved crop ratings. Underpinning prices were good export demand and, growing ethanol usage and demand. Prices were supported early in the month when the USDA reduced ending stock projections for the crop year. The sinking US dollar and broad based commodity grains also added strength to the market. Renewed demand from China sparked a rally in prices. Dry conditions in the east-central corn growing region of China encouraged traders to add a risk premium into the market. There was speculation that China may need to import additional US corn supplies to cover any domestic shortfalls. A potential shift in US Midwest weather patterns created some worry late in the month. Some areas were starting to get too much moisture while other areas of the corn belt faced lingering hot, dry weather. Traders continued to monitor the situation, although some felt that the weather problems were only isolated to small areas of the region.

Weather problems in Western Canada spread into special crop markets, lending support to prices. Upward movement in dry pea prices was limited because of expectations for record large ending stocks for the 2009/2010 crop year. Lentils saw more price strength as international markets resigned themselves to the idea that Canadian farmers would not plant as many acres of lentils as initially intended. Processors also worried that crop development would be affected by the excess moisture, and that there may be a greater than normal risk of disease problems, heat during flowering, and adverse weather during harvest.

The Indian government announced minimum support prices for kharif grown crops in an effort to encourage farmers to plant more pulses and to help control food inflation. The main kharif grown crop that impacts Canada is pigeon peas due to substitution with split green lentils. The government has also included an incentive for farmers to sell pulses to procurement agencies during the two-month harvest. Canadian exports may be affected into the fall shipping period as new crop supplies become available.

Canaryseed prices saw some upward movement after months of no change. The crop is typically one of the last crops to be seeded in Saskatchewan. If farmers were unable to seed all intended acres because of ongoing weather problems, there is a chance that less canaryseed will be grown than is normally consumed by the market. Prices could rise further to ration available supply across outstanding demand.