Situation Report — August 2010

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Canadian wheat and canola production expected to decline

Statistics Canada released initial production estimates for the 2010/2011 crop on August 20, 2010. Prairie farmers expected to produce less wheat and canola this year compared to 2009 while farmers in Ontario and Quebec could produce more soybeans. Overall crop production in Western Canada was estimated to decline from last year’s levels because of persistent wet conditions throughout much of the growing area.

Total wheat production in Western Canada was reported at 20.5 million metric tonnes, a decrease of 15.5% from 2009. Harvested area was expected to be only 19.0 million acres. In comparison, farmers harvested 22.4 million acres of wheat in Western Canada in 2009. Manitoba and Saskatchewan expected decreases in production while Alberta was predicting a small increase as timely rains reduced some of the severity of recent droughts.

Lower projected yields dropped Prairie canola production from 11.7 million tonnes in 2009 to an estimated 10.7 million tonnes for 2010. Yields were estimated to be 30.7 bushels per acre. Provincially, Manitoba and Saskatchewan farmers reported potential declines in harvested area, yield and production because of excess moisture and flooded land. In Alberta, farmers reported an increase in production as a result of predicted increases in yield and harvested area. Rains alleviated some of the drought conditions in many of the canola growing areas of the province.

Soybean production was expected to reach record levels in Quebec, Ontario and Manitoba as a result of high harvested area and large yields. Production in Quebec was estimated at 730,000 tonnes as harvested area increased to 659,800 acres. In Ontario, production was expected to increase by 8.1% from 2009 to 2.8 million tonnes. Harvested area was reported to be higher at 2.4 million acres. Manitoba farmers could produce 342,900 tonnes of soybeans as harvested area expands by 35,000 acres over 2009.

Flooding throughout many regions in Western Canada increased summerfallow acres to 12.1 million acres. Summerfallow area had not been this high since 1999 when it totalled 15.0 million acres. Saskatchewan saw the largest increase in summerfallow with 9.7 million acres going unseeded. This was an increase of 135.9% over 2009. Much of the increase was found in the East and East-central districts where severe flooding occurred during seeding. Manitoba farmers reported 760,000 acres of summerfallow, an increase of 60.0% from 2009, while Alberta remained unchanged at 1.6 million acres.

Harvest season underway

After a slow start to the growing season, Canadian farmers have started to harvest their 2010 crops. Western Canada continued to be hampered by rains while Eastern Canada progressed under unseasonably warm weather.

Harvest of spring cereals neared completion in Ontario as weather conditions allowed. For the third consecutive year, fusarium was a major issue in the spring wheat crop, especially for the later planted fields. Early harvested fields were reported to be of excellent quality with yields up to 100 bushels per acre. Oat yields were above average and test weights were averaging 40 pounds per bushel. Crown rust was found in some fields, reducing both yield and quality. Barley yields were above average throughout most of the province.

Harvest continued throughout Manitoba; however, rains delayed progress in many areas. Winter wheat and fall rye harvest operations neared completion. Yields for winter wheat have ranged from 30 to 70 bushels per acre and quality has varied depending on fusarium levels. Average to above average yields were being reported for fall rye. Harvest of spring cereals has begun in most areas, ranging from swathing to combining. Central and Eastern Manitoba are the farthest advanced. Early yields as reported by Manitoba Agriculture, Food and Rural Initiatives (MAFRI) were: 7 to 55 bushels per acre for spring wheat; 60 to 80 bushels per acre for barley; 85 to 110 bushels per acre for oats; and 15 to 40 bushels per acre for canola. The largest variations in yields and quality were seen in Eastern Manitoba and the Interlake where excessive moisture throughout the entire growing season stressed the crops. In Northwest Manitoba, only limited harvest operations were reported.

Wet and cool weather continued to delay crop maturity and slow harvest throughout Saskatchewan. Minimal combining had been completed with approximately only 2% of the 2010 crop combined and 9% swathed or ready to combine. As of August 23, 2010, 24% of the winter wheat and fall rye acres had been combined while 6% of lentils, 15% of dry peas and 3% of mustard acres had been completed. The majority of crop damage reported was caused by flooding, wind, disease and hail.

Warm temperatures and rain showers in Alberta helped to advance crop development. However, due to delayed seeding and cool temperatures early in the growing season, crop development remains ten to twenty days behind normal in the Southern Region and seven to ten days behind normal in the Central, North East and North West Regions. In the Southern Region, farmers started to harvest winter cereals and dry peas. Canola and dry peas were being combined in the Peace Region. Provincially, crop yields were expected to be above average except for in the Peace Region, where yields were mostly below average. Damage was reported in many areas from crop diseases, gophers, lygus bugs, flea beetles, grasshoppers, root maggots and diamond back larvae and moths.

World supply-demand

The United States Department of Agriculture (USDA) released updated world supply and demand estimates on August 12, 2010.

Global wheat supplies for 2010/2011 were reduced sharply as weather problems in the Former Soviet Union (FSU) and the European Union (EU) lowered world production by 15.3 million metric tonnes. Russian production was lowered by 8.0 million metric tonnes as extreme drought and record heat during July and early August reduced summer crop prospects. Kazakhstan production decreased 2.5 million metric tonnes because of the drought condition. In Ukraine, heavy summer rains damaged maturing crops and slowed harvesting in the western and southern growing areas. As a result, production was reduced by 3.0 million metric tonnes from last month. EU-27 production decreased 4.3 million metric tonnes because of reduced yields in northwestern Europe from untimely heat and dryness. Yields were also lowered for southeastern Europe as heavy rains reduced output.

Global wheat consumption was projected to be lower as tighter supplies supported prices. World wheat trade was estimated to be lower as a consequence. Imports were lowered by 5.7 million metric tonnes as higher prices reduced demand in a number of countries. Russian exports decreased by 12.0 million metric tonnes to reflect the recent announcement banning exports until December 31, 2010 and an expected higher wheat feeding. Exports for Kazakhstan and Ukraine dropped by 2.0 million metric tonnes each because of lower production estimates. Higher exports from China, Australia, EU-27, Turkey and the United States offset some of the decrease from FSU-12.

Global coarse grain supplies for 2010/2011 were decreased by 10.6 million metric tonnes from July as reduced foreign production more than offset higher United States corn output. Over half of the reduction in coarse grain production is for barley as weather conditions adversely impacted crop development. Barley production was lowered by 3.0 million metric tonnes in Russia as drought and extreme heat reduced yield potential for spring barley. EU-27 barley production was dropped 1.5 million metric tonnes as heat and dryness swept northwest Europe and excessive rains plagued Eastern Europe. Offsetting some of the loss was an increase in US corn production of 3.1 million metric tonnes.

Increased demand for corn in China, EU-27, South Korea and Israel raised global coarse grain import estimates. Higher barley exports from EU-27 and Australia and higher corn exports from the United States were expected to offset reduced coarse grain exports from Russia and Ukraine. Global coarse grain ending stocks were 8.1 million metric tonnes lower than last month with smaller corn and EU-27 barley stock projections.

World oilseed production was estimated at 439.7 million metric tonnes. Reduced production of sunflower seed and rapeseed were mostly offset by higher soybean production. Russia and Ukraine both saw a 1.0 million metric tonne reduction in sunflower seed production. Ongoing drought and excessive heat in July and early August impacted yield potential in both countries. Rapeseed production dropped for EU-27, Russia, Ukraine and Belarus while a larger US crop increased global soybean production. Other adjustments included larger rapeseed production in Australia, smaller sunflower seed production in EU-27, lower cottonseed production in Pakistan and higher cottonseed production in India.

Grain silos to be built at port

Hamilton Harbour will soon see work begin on a multimillion-dollar, state-of-the-art grain terminal. Parrish and Heimbecker (P&H), a national agri-food business based in Winnipeg, Manitoba, signed a long-term lease with the Hamilton Port Authority for more than 3530 square metres at Pier 10. The terminal will be located on 3.8 hectares of land and measured by square footage, will be among the top ten biggest tenants at the port.

P&H plans to demolish existing warehouse buildings located on the land and build two 10-storey concrete silos. The silos will include equipment that will allow ships to be unloaded automatically. The new facility will become the company’s export hub for Ontario grains. Products will also be imported from the United States and Western Canada for processors such as flour mills and ethanol plants.

The initial two silos will be completed in time for the 2011 harvest while an additional two silos will take another year.

Draft technical agreement reached with India

Indian government officials and the Canadian Food Inspection Agency (CFIA) have reached a draft technical arrangement that will allow Canadian pulse shipments to be fumigated with methyl bromide upon arrival in India. CFIA will no longer need to test each shipment for stem and bulb nematode in order to issue a phytosanitary certificate. India recognized that fumigation upon arrival in India is the most effective and efficient way to mitigate the risk of the pest in dry pea shipments.

India initially required all imports of pulses to be certified free from stem and bulb nematode, a disease present in small numbers in Canada. Interim policies allowing fumigation at arrival in India had been in place and extended for six month periods while a longer term agreement was being negotiated.

Prices

At the beginning of August, the Russian government announced an export ban on agricultural products, including wheat; barley; corn; rye and flour, starting August 15 until December 31, 2010. Extreme drought and wildfires sharply reduced crop potential in the country. In an attempt to curb food inflation, the government banned exports until the harvest has been completed. Export potential will be examined and only then may Russia begin to honour its export contracts. Russia has also asked other countries in the Commonwealth of Independent States (CIS) to also ban exports. Kazakhstan and Ukraine had yet to make similar announcements but many traders expected them to in the near future. Ukraine appeared to be slowing export movement through stronger enforcement of bureaucratic regulations.

The Russian announcement sent global wheat prices soaring to their highest level in two years on the concerns about the global supply of the grain and the possible impact on food prices. The Food and Agriculture Organization (FAO) reduced its 2010 global wheat production forecast because of production problems in Russia and Western Europe. However, it still considers supplies of wheat to be adequate. Stocks held by traditional wheat exporters remained ample. Wheat futures’ prices lost some of their strength as profit-taking and a reassessment of global supplies weighed on prices. Reports that Russia may have to import up to 4 million metric tonnes of grain, including wheat and corn, to meet domestic needs for both human and animal consumption added a floor to prices.

Chicago corn futures’ prices started the month under pressure from favourable near-term weather conditions and strong crop ratings. As wheat futures’ prices surged with Russian announcements for bans on exports, prices gained strength from spillover support. Production problems for wheat and barley in Russia were seen as raising the price of feed grains. If prices remained at high levels for an extended time, demand could shift to corn because of its price competitiveness. As the month progressed, support from the wheat market slipped, tempering upward price momentum. The USDA’s projections for increased exports during the 2010/2011 marketing year helped to rally prices mid-month. A surge in export demand was seen as a sign that buyers were trying to quickly cover their feed needs. An estimated near record US corn crop and advancement in crop development weighed on the market, limiting the upside potential of prices. Variable crop conditions throughout the US corn growing regions, and subsequent yield concerns, added some uncertainty to the market.

The Chicago Board of Trade (CBOT) soybean futures’ market began the month supported by soaring wheat prices, underlying demand from domestic and export markets, and crop concerns as US soybeans entered the key development phase for yield determination. Near term futures contracts stumbled as farmer selling increased. Producers took advantage of recent price rallies to reduce old crop stocks before new crop harvest began. As the month progressed, favourable crop conditions and above-average soybean crop ratings pressured futures’ prices down from seasonal highs. Soybean prices found renewed strength with the USDA’s projections for rising global soybean demand and increased US exports. However, the potential for a record US crop kept a ceiling on the market. Reports of Sudden Death Syndrome, a plant disease that can reduce yields by 20% to 60%, being found in most soybean fields in Iowa and in Illinois underpinned prices. Iowa has historically been ranked as one of the United States’ top-two producers of soybeans.

Winnipeg canola futures’ prices were strong at the beginning of August as strength spilled over from the global wheat market and CBOT soybean futures’ markets. Concerns regarding the growing conditions in Western Canada helped to underpin the market. Slowing some of the gains was continued selling by producers into the cash market as price targets were reached. Estimates for decreased production of rapeseed in Europe and the FSU also supported the canola futures market. Prices began to decline as the month progressed. Improved growing conditions in Western Canada and the subsequent increase in crop prospects weakened canola futures’ prices. The advancing Western Canadian harvest and belief that some of the frost concerns could be taken out of the price outlook tempered gains mid-month. Steady commercial demand from domestic crushers kept upward pressure on the futures’ prices throughout August.

The Canadian Wheat Board released its August 2010 Pool Return Outlooks (PROs) for wheat, durum wheat and barley on August 26, 2010. Wheat values rose between $33 and $53 per tonne from last month, depending on class, grade and protein level while durum wheat was up $33 to $41 per tonne. Malting barley increased by $46 per tonne and feed barley was raised to $66 per tonne. The Russian drought and subsequent export ban has had a large impact on both wheat and barley markets.