Situation Report — September 2010

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Western Canadian harvest delayed by rain

Rainfall and cool temperatures in September delayed harvest progress across most of Western Canada. In Ontario, warm, dry conditions throughout August and September have allowed harvest to progress at normal rates.

In the South Region of Alberta, harvest was impeded by continued rains and wet conditions. Snow and frost at mid-month ended hopes of late-seeded crops maturing. Most winter wheat was harvested and silage crops completed. Few cereal crops were harvested and some canola was swathed. Heavy frost in the Central Region also impacted late-seeded crops. Rain, cold weather and dew prevented fields or grain from drying. Cereal crops were beginning to bleach and sow signs of discolouration from weather. Harvest progressed in the Northwest Region despite showers. Farmers continued to straight cut wheat and swath canola in an attempt to minimize frost damage. In the Northeast Region, producers struggled to harvest crops as fields were slow to dry. Some producers were combining dry peas only one way in the field to limit losses. Some canola was harvested to fill contract obligations while some barley was combined and delivered to feedlots. Standing canola was also being swathed in an attempt to minimize frost damage. Harvest was progressed the farthest in the Peace Region after another year of drought conditions. Harvest yields for canola ranged from 5 to 25 bushels per acre and quality was generally good. Wheat and barley harvesting was mostly completed with generally poor yields being reported.

By September 20, Saskatchewan Ministry of Agriculture reported that 18% of the 2010 crop had been combined and 41% was swathed or ready to straight-combine. In comparison, 50% of the crop one year ago was combined and 33% was swathed or ready to straight cut. Winter wheat, fall rye, dry peas, lentils, mustard, canola and barley harvests had progressed the farthest. Frost affected most of the province on September 17 and 18. The majority of crop damage had been caused by rain and frost. Damage included lodging, bleaching, sprouting and flooding. Fields were very wet, making harvest difficult.

Harvest moved forward in Manitoba between the rains and as field dried enough to support machinery. In the Southwest Region, cereal crop harvest ranged from 40 to 65% complete. Quality of remaining cereal crops continued to decline due to weathering. Canola harvest ranged from 10 to 50% complete with yields average to below average. The sunflower crop was showing effects of sclerotina head rot and stem rot. Some winter wheat and fall rye had been planted but acres were limited. In the Northwest Region, wheat ranged from 75 to 85% complete while canola harvest was 25 to 35% finished. Both crops had below average yields for the region. Cereal grain harvest was reported to be 95 to 100% complete across the Central Region. Only later harvested fields suffered grade loss due to sprouting under wet field conditions. Canola harvest was mostly complete in the Red River Valley with varying yields because of drowned out areas in fields. In the escarpment area, canola harvest was 85 to 95% complete with above average yields and good grades. Flax and field beans were mature and harvest progressed as conditions allowed. Warm season crops like corn, soybeans and sunflowers were maturing with white mould in beans and head rot in sunflowers being reported. Seeded winter cereal acreage was considered below average. In the Eastern Region, 5% of wheat acres, 10% of oats and 15% of flax remained to be harvested. Soybean harvest was underway in early seeded fields and early maturing varieties. Reported yields were between 30 to 40 bushels per acre. Sunflowers continued seed filling and yield potential varied because of excess water damage. Corn was maturing. Harvest was incomplete on most crops in the Interlake Region as farmers struggled to move heavy equipment across wet cropland. Recent frosts helped to advance soybean and sunflower dry down.

The harvest of Ontario’s soybean crop began as producers also prepared to cut down corn, according to Ontario Ministry of Agriculture, Food and Rural Affairs. The soybean harvest was underway in most areas of the province, although the majority of the crop was still in the field. Soybean yields were reported to be generally above average, depending on summer rainfall accumulation. In areas with little summer rainfall, yields ranged from 30 to 40 bushels per acre. Where moisture was adequate, exceptional yields, up to 70 bushels per acre, have been found. Seed size and quality was good with little insect damage or mature green seed. The canola harvest was complete, with most areas reporting above average yields of 1 to 1.25 metric tonnes per acre. The edible bean crop harvest was almost complete in most areas. Yields varied widely with planting date and seasonal rainfall.

World supply and demand

Global wheat supplies for 2010/2011 were reduced by 0.7 million metric tonnes from previous estimates as higher carry-in mostly offsets a 2.7 million metric tonne decrease in world production. A large portion of the higher carry-in was explained by an increase of 1.5 million metric tonnes to beginning stocks in Canada. Reducing some of the effects of the increased stocks were lower production estimates for Russia and European Union-27 (EU-27). Russian production was lowered by 2.5 million metric tonnes based on the latest harvest results for the drought-affected central growing areas in the Volga and Urals Federal Districts. Production for EU-27 decreased 2.4 million metric tonnes, mainly due to large reductions for Hungary and Romania where heavy summer rains reduced yield.

Global wheat exports were projected to be 1.4 million metric tonnes higher as shifts among countries largely reflected the availability of supplies and increased competition from North America. Exports were raised for Canada, the United States, Russia, Iran and Kazakhstan while EU-27 and Australia saw reductions in export projections. EU-27 exports were lowered with reduced supplies and increased competition from Canada. Logistical constraints were expected to limit exports from Australia. Russian exports were increased to reflect larger-than-expected shipments during early August before the export ban was implemented. World wheat imports were raised with increases for Nigeria and Russia. Global ending wheat stocks were estimated to be 3.0 million metric tonnes higher because of increases in stocks for EU-27, Canada and Australia.

Global coarse grain supply was reduced by 8.7 million metric tonnes because of lower production. Lower US and EU-27 corn production accounted for over half of the reduction in coarse grain output. EU-27 corn production decreased 1.2 million metric tonnes because of smaller reported area and yields for France and Germany and lower reported yields for Italy, Austria and Spain. Corn production in the United States was forecasted at 334.3 million metric tonnes, down 5.2 million metric tonnes from previous estimates. World barley production decreased by 2.0 million metric tonnes while world oat production was lowered by 0.9 million metric tonnes.

Coarse grain trade increased in September as US corn exports were raised by 1.3 million metric tonnes. Corn imports were 2.0 million metric tonnes higher for EU-27 as corn partly replaces wheat in feeding. Russian corn imports were also raised to help offset reduced supplies of feed barley.

For the 2010/2011 crop year, global oilseed production was increased 0.9 million metric tonnes from last month to 440.6 million metric tonnes. Soybean production was projected to be higher by 1.2 million metric tonnes because of increased production forecasts for the United States. Global rapeseed production was estimated to be higher as increased production in Canada more than offset reductions in Russia and Ukraine.

Global trade in oilseeds for 2010/2011 was projected to be 3.8 million metric tonnes higher at 108.7 million metric tonnes. Chinese imports were raised to reflect increased protein meal consumption and higher soybean stocks. Global oilseed stocks were decreased mainly due to lower soybean stocks in the United States and South America.

Alliance Grain Traders Inc. expands in Australia

Alliance Grain Traders Inc. announced that it had reached an agreement to purchase Australia-based Balco Grain for approximately $10 million. Included in the acquisition is property from Balco Holdings, storage for pulses and grains, handling equipment and planned expansions and improvements. The Balco facility is adjacent to South Australia’s first inland container terminal, which moves approximately 2000 containers a month.

Following this announcement, Alliance Grain Traders Inc. entered into a letter of intent to purchase all of the assets of Northern Yorke Processors located in Kadina, South Australia. The assets included real property, vertical and horizontal storage for pulses and grains, processing plant assets and related handling equipment. The new company would be owned and operated by Alliance Grade Traders Inc.’s wholly owned subsidiary, Australia Milling Group Pty Ltd.

Both transactions were scheduled to close by the end of September.

Alliance Grain Traders Inc. also announced that it had begun construction on two new projects in Turkey with the addition of a new short-cut pasta line at its Arbella processing facility in Mersin, Turkey and the construction of a state-of-the-art rice processing mill near Edirne, Turkey. The pasta line would add an additional 36,000 metric tonnes of pasta capacity while the rice mill was planned at 65,000 metric tonnes annually. Both projects were slated for completion in the first quarter of 2011.

New canola protein given GRAS status

Burcon NutraSceince Corporation (Burcon), a Vancouver, British Columbia-based company specializing in functional and renewable plant proteins, announced that the United States Food and Administration (FDA) issued a no objection letter with respect to Puratein and Supertein canola protein isolates.

The FDA had no objections or questions to the conclusion that Puratein and Supertein were Generally Recognized as Safe (GRAS) among qualified experts for use alone or together as an ingredient in dairy products, grain products, fruit and vegetable juices and beverages, salad dressings, meal replacements and nutritional bars. As such, Puratein and Supertein are now considered to be GRAS Notified.

Burcon’s patented process for the production of Puratein and Supertein canola protein isolates broadly separates the two naturally occurring proteins, cruciferin and napin, found in canola. The patented process creates two distinct protein ingredients with separate and distinct nutritional and functional profiles, allowing for their use in broader variety of food and beverage applications.

There are currently no canola proteins available in the commercial marketplace. In recent years, the company also developed a new soybean protein isolate which contains advantageous characteristics, including the fact that it will transparently dissolve in liquid and does not have the nutty taste other soy ingredients exhibit.

Burcon has an exclusive licensing agreement with Archer Daniel Midland Co. (ADM) to produce and market the two different canola protein isolates.

Puratein and Supertein are registered trademarks of the Burcon NutraScience Corporation.

Force Majeure declared on canary seed exports

On August 19, the Canadian Special Crops Association (CSCA) declared Force Majeure on canary seed exports to Mexico as a result of the zero tolerance on weed seeds of quarantine concern in canary seed shipments from Canada. Canadian canary seed shipments to Mexico have been stalled since late June when Mexico implemented a “hold and test” policy for all canary seed shipments from Canada. Any shipments found to contain quarantined weed seeds would be rejected.

Mexico’s import requirements were changed without the standard 60-day advance notice of change in import policy. A long-term solution has not yet been reached that would allow trade to continue in a predictable manner.

By imposing Force Majeure, as cited in clause 48(1) of the CSCA trade rules, the time for execution of Canadian canary seed contracts to Mexico entered into on or before August 19, 2010 and traded under CSCA trade rules, will be extended until the CSCA determines that the effect of this event no longer exists.

Efforts to negotiate import requirements that will allow Canadian canary seed shipments to Mexico to resume are continuing.

Prices

On September 23, the Canadian Wheat Board (CWB) released its September 2010 Pool Return Outlook (PRO) for the 2010/2011 crop year. Wheat values increased between $4 and $30 per tonne, depending on class, grade and protein level. Durum wheat was up between $1 and $21 per tonne. Malting barley was unchanged while feed barley values were $3 higher.

The wheat complex remained strong as fears surrounding the US corn ending stocks balance and the impact of widespread frost on the Canadian crop filtered through the marketplace. The ongoing Russian export ban, Ukrainian reluctance to export, EU quality issues, and United States logistical issues also combined to appreciate futures values.

Feed barley markets remained strong globally with the Russian export ban still in place and delays in grain shipments from Ukraine. Traditional Black Sea customers continued to look to Europe and Canada to source grains. Disappointing harvest results in Europe and Canada have also supported the world market.

US wheat futures markets were pressured lower throughout the month after reaching their highest level in more than a month. Larger-than-expected estimates for Canada’s ending wheat stocks and a higher crop estimate for Australia eased some worries about global wheat supplies. A lack of strong export news early in the month also weighed on US futures’ prices. Providing some support for the markets were worries about poor weather trimming global production. Traders remained nervous about persistent dryness hampering the planting of Russia’s winter wheat crop. Approximately 40% of the Russian wheat belt remained to dry to support proper establishment of a crop. Unfavourable weather during the Canadian wheat harvest also raised concerns about the quantity and quality of the crop that would be available. Near the end of the month, the Kansas City Board of Trade (KCBT) and Minneapolis Grain Exchange (MGE) wheat futures’ prices rebounded from recent losses as Egypt, the world’s largest wheat importer, bought US hard red winter wheat. Export sales have focused on high-protein hard red winter wheat, traded at KCBT, and hard red spring wheat, traded at MGE, since drought affected output in the former Soviet states this summer.

Chicago Board of Trade (CBOT) soybean futures rallied to nine month highs at the beginning of September as strong demand and uncertainty surrounding the US crop supported prices. Prices slipped somewhat after a bullish USDA crop report projected comfortable US soybean stocks for the 2010/2011 crop year. Mid-month, soybean futures markets found spillover support from corn and wheat markets but had little fresh supportive news to advance on their own. Early reports of good yields stalled the upward momentum and pulled soybean prices back down. The crop appeared to have avoided major weather problems during the growing season. The combination of potential frost damage to Canadian canola crops, frost threats to Chinese soybeans and dryness concerns for South American plantings pushed prices higher late in the month as speculators returned to the market.

Disappointing yield reports fuelled much of the gains seen in the CBOT corn futures market throughout much of the month. Wet weather during the growing season negatively impacted yields despite industry expectations for a record crop. Lower projected ending stocks for the 2010/2011 crop year also supported prices. By mid-month, corn futures’ prices had reached a new 23-month high as December corn topped $5 per bushel. End-users began to back away from the market, turning to buying corn on breaks in prices. As the month progressed, commodity fund activity continued to support corn futures’ prices more than the fundamentals.

Weather concerns plagued the canola futures market throughout most of September. The slow pace of crop development due to continued cool, wet weather conditions pushed harvest progress back and left the crop vulnerable to quality and yield downgrades due to frost. Steady crusher demand and the pricing of old export business by commercials also combined to underpin prices. Upside in canola futures’ prices was limited by a strong Canadian dollar, drop off in fresh export demand and elevator company hedging. Near the end of the month, farmer deliveries into the cash market picked up as bids rose to levels producers were willing to sell at. Gains in futures’ prices were further tempered by the increased deliveries.