Situation Report — July 2010

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World supply and demand estimates updated

On July 9, the United States Department of Agriculture (USDA) released updated global supply and demand estimates.

Global wheat supplies for 2010/2011 were reduced as a result of adjustments to production estimates. Canadian wheat production was lowered 4.0 million metric tonnes after extensive June rains delayed seeding across much of Western Canada. Production in Russia and Kazakhstan was decreased by 4.5 million metric tonnes and 3.0 million metric tonnes respectively as continued drought and high temperatures reduced yield prospects for spring wheat. Unfavourable growing conditions reduced yield prospects in Northern Europe, resulting in a 1.1 million metric tonne decrease in wheat production estimates for the European Union (EU). India’s production was dropped by 1.0 million metric tonnes based on reports that heat during late grain fill reduced yields. Meanwhile, production was raised for China by 2.5 million metric tonnes as favourable June weather boosted harvested area and yield. Total wheat production in the United States was also higher with larger forecasted area and record yields.

Global coarse grain supplies were estimated to be 14.9 million metric tonnes lower than last month. Almost half of the decline in supplies was attributed to reduced carry-in and production of corn in the United States. Beginning stocks for US corn were lowered by 3.2 million metric tonnes from June estimates because of higher expected usage during the 2009/2010 marketing year. Production decreased by 3.5 million metric tonnes based on a reduced harvested area. Outside of the United States, coarse grain production was lowered in Russia, Canada, EU-27 and Kazakhstan. Smaller yield prospects as drought and high temperatures continued dropped Russia barley production by 2.5 million metric tonnes while corn and rye production were lowered 0.5 million metric tonnes and 0.3 million metric tonnes respectively. Reductions of 1.1 million metric tonnes and 0.9 million metric tonnes were made to Canadian production of barley and oats, respectively, as persistent June rainfall limited plantings. Barley production in the EU-27 decreased 2.4 million metric tonnes because of lower reported area. In Kazakhstan, barley production was projected to be 0.8 million metric tonnes lower as extended drought and high temperatures impacted yield prospects.

A record 440.7 million metric tonnes of oilseeds were expected to be produced globally in 2010/2011. Global soybean production was increased by 1.4 million metric tonnes to 251.3 million metric tonnes due mostly to higher production in the United States. Canola production in Canada was estimated at 10.2 million metric tonnes, down 1.8 million metric tonnes from last month because of delays in seeding. Other changes include lower rapeseed production for China and EU-27 and increased cottonseed production for the United States, Brazil and Uzbekistan.

Mexico restricts Canadian canary seed imports

At the end of June, Mexico notified the Canadian Food Inspection Agency (CFIA) that all imports of Canadian canary seed would be held and tested for the presence of quarantine weed seeds, specifically wild buckwheat. A zero-tolerance for wild buckwheat was to be implemented, with any shipment containing even one seed being rejected.

On July 13, Gerry Ritz, Minister of Agriculture and Agri-Food Canada (AAFC), announced that an arrangement had been reached with Mexico to delay the regulations for 60 days in order to work out a solution. The delay will allow a number of railcars currently being held at the Mexican border to enter the country. A technical team from Mexico will also be touring Canada to assess the industry and the export process, including seed cleaning methods.

Mexico is Canada’s top canary seed customer, with average annual sales of 41,000 tonnes over the past three years.

Canadian Grain Commission reclassifies red winter wheat varieties

The Canadian Grain Commission (CGC) announced that effective August 1, 2013, five wheat varieties will be moved from the Canadian Western Red Winter (CWRW) class to the Canada Western General Purpose (CWGP) class. The five varieties are: CDC Kestrel, CDC Clair, CDC Harrier, CDC Falcon and CDC Raptor.

In response to industry concerns, the CGC planned to reclassify some CWRW varieties to better reflect milling quality of the wheat. Continuing to include varieties with high yields but low milling quality in the CWRW class affected the overall ability of the class to compete in world markets.

The Canadian Wheat Board (CWB) had split the CWRW class into two categories: Select and Generic. Select varieties were those wheats that had a minimum of 11% protein and high milling quality. Generic varieties did not meet the minimum protein requirement, but tended to be high yielding.

Effective August 13, 2013, all Generic varieties in the CWRW class will be moved to the CWGP class. All Select varieties will remain in the CWRW class.

Quebec biodiesel plant receives funding

The Government of Canada announced funding for QFI Biodiesel Inc. for the start-up of a plant in Saint-Jean-sur-Richelieu, Quebec. The repayable funding totalled $800,000 and was made available through the Community Adjustment Fund established under Canada’s Economic Action Plan.

The facility will produce premium quality, non-toxic biodegradable fuel made from animal and vegetable-based recycled oils such as soya, canola and sunflower. The biodiesel fuel will then be sold in Quebec, Canadian and international markets.

Mustard 21 Canada supported with funding

Mustard 21 Canada, a non-profit corporation established by industry groups to promote the increased production and use of mustard seed, received $4 million in funding from the Government of Canada to develop new varieties of mustard seed and new market opportunities for farmers. Researchers will study the potential use of mustard as a natural preservative, as a biopesticide for pest control in turf and ornamental plants and as an industrial feedstock for high-value applications such as biodiesel additives or biolubricants.

Funding is being delivered through the Agri-Innovations Program, which promotes industry-led innovation initiatives that help get new agricultural products into the marketplace and improve agricultural processes.

Government of Canada provides promotional funding

The Government of Canada announced $1.5 million in funding for the Canola Council of Canada’s (CCC’s) “Growing Great 2015” strategy to increase demand for canola products around the world. The investment will help the CCC to increase its promotional initiative, which will highlight the distinct health qualities of canola oil and meal. Other activities include promoting the heart-health benefits of canola oils as part of the World Heart Day on September 26 and a four-day education program called Canola Camp which will allow North American food writers, chefs, recipe developers and industry stakeholders to tour and taste canola country.

Federal Agricultural Minister Gerry Ritz announced $300,000 in funding under the AgriMarketing Program for Pulse Canada and the Canadian Special Crops Association to help showcase the Canadian pulse industry around the world. The funding will be used for travel to international food shows and to develop marketing materials to promote pulses.

The AgriMarketing Program provides funding to Canadian producer, processor and exporter associations to develop and implement long term international strategies and undertake activities such as international market development, brand building and industry-to-industry trade advocacy.

Canadian Wheat Board celebrates anniversary

On July 5, the Canadian Wheat Board marked its 75^th year working for Prairie farmers to market their grain to countries around the world. Today, 75,000 Prairie farmers sell their wheat, durum wheat and barley through a collective model to customers in more than 70 countries world-wide.

The marketing organization has undergone major change since its inception in 1935. The most important change occurred when producers assumed control of the organization. The first farmer-controlled board of directors was instated on December 31, 1998, replacing government-appointed commissioners.

The CWB’s 75^th anniversary is being celebrated with events and activities for farmers and customers: the creation of a customer-focused video, a travel contest for farmers, an online photo gallery and special receptions with major customers and government officials.

Port of Montreal lockout not affecting grain movement

The July 19^th lockout, which lasted a few days, of 850 longshoremen at the Port of Montreal by the Maritime Employers Association was not expected to impact grain movement. All commercial activity has been effectively halted at the port except at the grain silos. The grain silos are run by the port authority itself so the workers are not part of the labour dispute.

Prices

Canola futures were supported throughout the month by ongoing weather concerns in Western Canada. The wet weather across much of the eastern side of the Prairies and dryness issues in the northern canola growing regions of Alberta and British Columbia were thought to have reduced Canada’s canola production by 30%. The need to keep a weather premium built into the market as crop development progressed underpinned prices. Steady domestic crush demand, concerns about the rapeseed crop in Europe due to drought conditions, and gains in Chicago Board of Trade (CBOT) soybean futures also helped to increase futures’ prices. Slowing some of the gains was an increase in farmer selling at the higher prices.

Tight old-crop supplies and good demand underpinned nearby contracts on the CBOT soybean futures’ market. For new crop contracts, a decline in crop ratings and uncertainties about weather as the crop progresses towards its critical growing period in August boosted prices. Traders continued to add risk premiums to prices amid fears hot, dry weather could adversely affect US soybean yields as the crop heads into its critical pod-filling stage. Yield and production outlooks were expected to dominate market attention moving ahead.

Weather uncertainties, and the impact on global yields and production, also dominated the wheat futures’ market. The threat of crop losses in Russia and of quality issues with European wheat served as catalysts for a spike in prices mid-month.

Strength in the wheat futures’ market spilled over into corn to push prices higher, as they are linked together because both grains are used for animal feed. Weather reports were cautiously favourable for corn development, although the situation could change quickly if the forecasts for relentless heat into August were accurate.

Ongoing tender activity in India and the United States continued to support dry pea markets into July. The USDA purchased 5,730 metric tonnes of split yellow peas for movement in July, while in Canada, the prospect for additional movement of Canadian dry peas to India during the summer helped to temper disappointment over the decline in bulk conventional pea shipments. India’s state trading companies announced tenders for yellow peas and desi chickpeas for shipment through to the end of September. Traders were also concerned about the quality of the Canadian crop as the excessive moisture has been reported to be having more of an impact on dry peas compared to other pulses. These concerns helped to keep prices strong.

Lentil markets have been little changed as traders continued to monitor crop development in North America, and specifically Western Canada. While some of the lentil growing areas in Canada had suffered under excessive moisture, other areas had benefited from the above normal rainfall. Yields were projected to be at least average in those areas. Markets were also surprised at the 28% increase in seeded acres in the United States from the March Prospective Plantings. Reports of buying interest from Turkey were thought to be a sign that the country may be running short of product. Turkish traders may have sold local lentil production to regional neighbours ahead of the start of Ramadan with the expectation of replacing stocks with lower cost North American supplies later in the marketing year.

Fears of a sharp decline in Canadian canary seed production continued to support prices into July. News of Mexican enforcement of a zero tolerance for specific types of weed seeds in canary seed shipments stalled some of the upward price movement that had been occurring recently, especially in inter-dealer markets. However, there was still a need for the market to ration demand for Canadian canary seed against available supplies. Canada is expected to be essentially sold out of canary seed by the end of the 2010/2011 crop year, especially with lower projected production. Mexico has accounted for approximately 25% of all Canadian exports over the previous five years. If the Mexico ban remains in place, the needs of all other buyers of Canadian product could be met with less impact on price.

Sunflower seed markets remained quiet throughout much of the month. Oil-type sunflower seed prices continued to follow soybean oil prices because of their substitutability. Markets should remain firm as the crop year progresses. The sunflower crush pace is ahead of last year and demand remains stable. Tight US soybean supplies, increased biodiesel production in Argentina and strong export demand from China will keep volatility in the soybean market, which could carry over into the oil-type sunflower seed markets. Demand for sunflower seeds from the birdseed market was still very poor as global economies continued to struggle to recover from the recession.