Situation Report — March 2011
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World supply and demand estimates
The United States Department of Agriculture (USDA) released updated world agriculture supply and demand estimates on March 10, 2011.
Global wheat supplies were estimated to be 1.9 million metric tonnes higher than last month for the 2010/2011 crop year. The increase was a result of higher production projections, specifically for Argentina and Australia because of higher yields. Global wheat trade was lowered to reflect reduced import prospects for a number of smaller markets. High prices were seen as trimming demand in these markets. Wheat consumption was also forecasted to be lower than earlier estimates. The most significant change was a 1.5 million metric tonne decrease in expected wheat feeding for Russia. Increased production and reduced usage combined to raise global ending wheat stocks by 4.1 million metric tonnes.
World coarse grain supplies for 2010/2011 were reduced by 2.5 million metric tonnes this month because of smaller corn beginning stocks and lower corn, barley, sorghum and oats production. Imports of coarse grains were higher than the previous month. Higher corn and sorghum imports more than offset lower barley imports. A projected increase in corn feeding in EU-27 only partially offset the decreased feeding in Russia and lower food, seed and industrial use in India and Mexico. As a result, global corn ending stocks were raised slightly.
Global 2010/2011 oilseed production was estimated at 444.2 million metric tonnes, an increase of 2.4 million metric tonnes from February. Brazil soybean production was forecasted to be at a record 70.0 million metric tonnes due to higher projected yields. Global oilseed supplies, crush and ending stocks were all estimated to be higher. Soybean crush was increased for Brazil and India while sunflower seed crush was raised for China and EU-27. Brazil and China had higher soybean stocks, offsetting reductions for China, Canada and India. Rapeseed stocks were projected to be larger for EU-27, Australia and Turkey. Global protein meal production, consumption and stocks were all higher this month compared to previous months.
Earthquake and tsunami hit Japan
On March 11, a 9.0 magnitude undersea earthquake occurred off the coast of Japan. It was followed minutes later by a tsunami that reached heights of 10 metres. The earthquake was the largest to hit Japan since record-keeping began in the late 1800s. Dozens of cities and villages along a 2,100 kilometre stretch of coast felt the quake while tall buildings in Tokyo swayed. A tsunami, with waves of up to 10 metres, reached the north-eastern coast of Japan minutes later.
The earthquake occurred at the intersection of the North American and Pacific Plates in the north-western area of the Ring of Fire. It was caused when one tectonic plate was shoved under another. A rupture 400 kilometres long and 160 kilometres wide was created in the sea floor 125 kilometres off the eastern coast of Japan. The main earthquake was preceded by a number of large foreshocks starting on March 9. Over 600 aftershocks of magnitude 4.5 or higher had occurred after the initial earthquake.
The force of the earthquake moved the island of Honshu 2.4 metres closer to North America. The Earth's axis shifted 16 centimetres, leading to a number of small planetary changes including the length of a day and the tilt of the Earth. The speed of the Earth's rotation increased, shortening the day by 1.6 microseconds.
Tsunami warnings were issued by the Japan Meteorological Agency shortly after the earthquake was felt. Just over an hour after the quake, a tsunami was recorded flooding Sendai Airport, located near the coast of Miyagi Prefecture. The severest effects were felt along a 670 kilometre stretch of coastline from Erimo in the north to in the south.
The Pacific Tsunami Warning Centre and the United States West Coast and Alaska Tsunami Warning Centre issued tsunami warnings and watches for locations in the Pacific and the coast of North and South America. Waves reached the coast of Chile, Hawaii, California and British Columbia.
Extensive and severe structural damage in Japan was caused by the earthquake and tsunami. Heavy damage to roads and railways, numerous fires and a collapsed dam were all reported. Many electrical generators were affected and at least three nuclear reactors suffered explosions because of hydrogen gas build-up within the outer containment buildings.
The Fukushima Daiichi, Fukushima Daini, Onagawa Nuclear Power Plant and nuclear power stations were automatically shut down when the earthquake was detected. At Fukushima Daiichi and Daini, tsunami waves destroyed diesel backup power systems, causing severe problems including two large explosions at Fukushima Daiichi and radiation leakage.
Hydrogen explosions at Fukushima Daiichi destroyed the upper cladding of the buildings housing reactors 1, 3 and 4. An explosion damaged the containment vessel inside Reactor 2 and multiple fires started in Reactor 4. As water levels in the spent fuel pools dropped in units 1 to 4, spent fuel rods began to overheat. An area with a radius of 20 kilometres around the plant was evacuated over fears of radiation leaks. Self-Defence Force helicopters dropped ocean water on the spent fuel pools in an attempt to replenish water levels and cool the spent fuel rods to prevent further radiation leaks. Power was restored to parts of the plant on March 20 after a grid power cable was connected. Work continued to make equipment operational, including diesel generators to restart cooling units.
All of Japan's ports closed briefly after the earthquake to assess damages. Ports in Tokyo and southward soon reopened. The north-eastern ports of Hachinoche, Sendai, Ishinomaki and Onahama were destroyed. The Chiba port and the container port at Kashima were also damaged, although less severely.
On Monday following the earthquake, the Tokyo Stock Exchange dropped as soon as trading began. It was a massive sell-off that triggered a 6.2% nosedive in the Nikkei stock average. Markets around the world faltered with the ripple effect. By midday, the Bank of Japan announced a 15 trillion yen injection into the economy. It was meant to assure financial stability. On March 15, the Nikkei stock average closed 10.6% down, marking the worst single-day performance since 1987.
Libyan unrest continues
On March 17, the United Nations (UN) Security Council approved a resolution establishing a no-fly zone over Libya. The Council authorized "all necessary measures" to stop attacks on civilians, including strikes by sea and air.
A no-fly zone is a geographical area designated as forbidden to air traffic. It is established as a way of preventing rogue regimes from bombing their own people. The zone is patrolled by military aircraft that have the authority to shoot down unauthorized planes.
The Libyan no-fly zone was concentrated in the northern two-thirds of the country, encompassing the capital of Tripoli and rebel stronghold Benghazi. The Western Coalition targeted Libyan air defences around Tripoli and Misrata. Gadhafi's forces and the rebels continued to clash in Misrata, Ajdabiya and Zintan. Coalition forces knocked out Libyan radar and anti-aircraft missile capabilities and disabled aircrafts and runways. Efforts would now be focused on preventing ground troops from moving against anti-Gadhafi protestors.
The Western Coalition includes personnel and military equipment from the United States, United Kingdom, Belgium, Denmark, France, Canada, Greece, Italy, Netherlands, Norway, Romania, Qatar, Spain and Turkey. Other countries were willing to make "logistical contributions" or participate in a humanitarian capacity.
On March 24, NATO took over control of enforcing the no-fly zone over Libya. Lieutenant-General Charles Bouchard of Canada was designated to lead the military campaign.
The North Atlantic Council met on March 27 to decide on further NATO action, including a potential no-drive zone. American, European, Arab and African leaders were expected to meet in London on the previous day to further discuss the situation in Libya.
Richardson International to purchase North East Terminal
Richardson International Limited entered into an agreement to purchase North East Terminal, a grain handling facility in Wadena, Saskatchewan. The agreement also includes the crop input facilities in Wadena, Kelvington, Foam Lake and Ponass Lake, Saskatchewan. Shareholders will vote on the purchase agreement on April 6. The deal is expected to close on April 13 if approved by the shareholders.
Upon completion of the sale, Richardson International plans to upgrade and enhance the grain handling and crop input facilities to improve safety, increase efficiencies and better serve customers. Total cost of the upgrades is estimated to be C$3 million.
Prince Rupert port expansion moves forward
Agreements to expand the Port of Prince Rupert in British Columbia were reached with the Kitselas First Nation, the Kitsumkalum First Nation and the Government of Canada. The agreements will aid in the development of the Asia-Pacific Gateway and Corridor while adding to the overall economic stability of the region. The First Nation communities will also benefit from economic development opportunities.
The Government of Canada invested C$30 million in the construction of Phase 1 of the new Port of Prince Rupert container terminal. An additional C$28 million will be provided to establish a state-of-the-art container-screening program to help guarantee secure and efficient border services at the terminal.
2011 navigation season resumes March 22
The 2011 navigation season on the Welland Canal and the Montreal/Lake Ontario sections of the St. Lawrence Seaway system began on March 22, according to the St. Lawrence Seaway Management Corporation. Vessel transits will be subject to weather and ice conditions, with some restrictions in place until the water is ice-free. Restrictions may also apply in some areas until lighted navigation aids are installed.
The Sault Ste. Marie Locks and Canals and the United States Soo Locks opened March 25 for the 2011 navigation season.
South American weather affects soybean harvest
South American soybean crops deteriorated throughout March because of too much rain in key soybean growing areas of Brazil and Paraguay and insufficient moisture in some important Argentine areas.
Heavy rainfall in Brazil during the first 10 days of March caused quality problems and yield losses as the ripe soybean plants partly opened in the fields before they could be harvested. Movement of soybeans to export and processing locations was delayed due to muddy fields and roads. Soybeans were being harvested at 30 to 40% moisture, leading to large discounts on prices paid by the crushers or to rejection. The poor quality beans result in lower soy oil extraction rates. By months end, some progress had been made but harvest was still running behind schedule in Mato Grosso, Mato Grosso do Sul, Sao Paulo and Minas Gerais.
A new disease, called "mad soybeans", had been found in the Brazilian states of Mato Grosso and Goias, adding further uncertainty to production prospects. Yields on affected fields were expected to be lower but it was not yet known to what extent the disease had spread or what the impact would be.
Rainfall also delayed harvest progress in Paraguay during the first few weeks of March. Many regions had already received 200 to 300% of normal volumes. Crop quality deteriorated and the risk of further losses from shelling increased. As harvest resumed, yield losses were not as great as expected however.
In Argentina, below-normal rainfall stressed later planted soybeans, increasing the likelihood of crop losses. The dryness was most pronounced in La Pampa and the Buenos Aires province. It was generally expected that the average yield would be less than the 2.9 metric tonnes per hectare achieved last year.
On March 24, the Canadian Wheat Board (CWB) released its latest Pool Return Outlook (PRO) for the 2010/2011 crop year. Wheat values decreased $1 to $10 per tonne from last month. Milling durum wheat also declined by $16 to $18 per metric tonne.
The CWB cited increases to USDA's ending stock projections as the reason for the decreases in the wheat PRO. Global wheat supplies were once again trending towards burdensome levels. Wheat was still relatively abundant, although old crop supplies of higher quality wheat were tight worldwide.
Durum wheat demand eased as conditions turned favourable in North Africa and the European Union (EU). Appreciation of the euro had positive effects on EU imports and negative effects on EU exports.
The CWB also updated the PRO for 2011/2012 on March 24. Wheat values declined $23 to $28 per metric tonne while durum wheat decreased $24 to $38 per metric tonne. Feed barley Pool A was lowered $26 per metric tonne and designated barley was down $9 per tonne.
The earthquake, tsunami and ongoing threat of a nuclear meltdown in Japan and continuing crisis in Libya played significant roles in keeping both the broader economic and agricultural markets uncertain and volatile.
Production potential for the 2011/2012 wheat crop outside of North America is positive and appears to be improving. Quality spreads were forecast to narrow based on projections for more normal production in 2011/2012.
Global production and supplies of feed and malting barley were expected to increase in 2011/2012, assuming average growing conditions continue.
US corn futures started March near a 32-month high with support from ongoing supply concerns and rallying crude oil. Weekly export sales topped one million tonnes for the fifth consecutive week, increasing concerns about strong demand as season-ending supplies were projected to be at a 15 year low. Futures' prices stumbled on uncertainty about political unrest will slow the global economy and reduce demand for commodities. The Japanese earthquake and tsunami pushed corn prices down to their lowest levels since January as fears of a slowdown in the global economic recovery were amplified. Corn futures closed limit down at a nearly ten-week low as traders reduced risk after reports of Japan's nuclear crisis were made. Investors pulled cash out of risky assets in favour of more liquid holdings. By mid-month, corn markets began to recover and even closed up the daily 30 cent limit on growing confidence in Japan's ability to recover from the disaster. Rumours of sales to China, a non-traditional corn buyer, also helped to push prices higher. Concerns that wet weather may prevent farmers from planting enough corn to replenish inventories provided further support ahead of USDA's plantings estimates released on March 31.
Concerns about dryness threatening the United States hard red winter wheat crop persisted in the wheat futures markets, underpinning prices throughout the month. Prices felt pressure from demand worries and relatively adequate supplies. Higher crude oil prices created worry about the global economy and commodity demand. Japan's massive earthquake and subsequent nuclear meltdown threat pressured wheat futures' prices lower. Uncertainty about the future of Japan's economy added to the concerns about a global slowdown already sensitive because of unrest in the Middle East and North Africa. Spillover support from rallying corn at mid-March allowed wheat prices to rebound. Improving demand for wheat from foreign buyers and livestock producers also supported prices late in the month.
Worries about tight ending stocks supported US soybean futures' prices throughout March. Traders remained concerned about bean supplies keeping pace with global demand, especially as China renewed demand for US soybeans. Early reports of record production in South America pressured soybeans down; however, as reports of heavy rains in Brazil disrupting harvest progress and delaying loadings of soybean supplies for export reached the market, prices turned higher again. Following the earthquake in Japan, US soybean futures stumbled, succumbing to broader based selling as traders reduced risk exposure. Futures dropped by the exchange-imposed daily limit as market participants liquidated their holdings. Political unrest in the Middle East and North Africa added additional pressure to the market. Soybean futures' prices found strength as the month closed out from uncertainty over 2011 soybean plantings, rising concerns that Brazil's crop may not be as large as expected and worries about global soybean supplies due to strong demand.
Steady domestic crusher demand and the pricing of old export business provided support to Winnipeg canola futures. Acreage concerns in Western Canada also helped to underpin prices in March. A wet and cold outlook for the spring could push producers into considering other cropping options. Steady elevator company hedge selling, as producers continued to price old and new crop supplies, weighed on prices and restricted some of the upward price momentum. Large soybean prospects in Argentina and Brazil helped to influence some of the price weakness in canola early in the month, although heavy rains in Brazil as the month progressed offset some of the weakness as concerns grew over potential yield loss. Canola futures followed other markets lower after the Japanese earthquake over worries of economic uncertainty and disrupted demand for Canadian canola from Japan. Many months posted limit down declines before making strong advances with fresh buying from a variety of sectors and gains in the outside oilseed markets.
Dry yellow peas stepped back from recent highs of $8 per bushel as speculation of frost damage to India's pulse crop was not as severe as originally predicted. There was some frost damage done but it has not been as detrimental as first thought. Export movement of dry peas has also slowed, adding downward pressure to Canadian prices. In the United States, dry pea values were supported by USDA tenders for spilt yellow peas for use in PL-480 food aid programs.
The domestic feed pea market has been holding steady over the past few months as demand has been renewed for peas in livestock rations. Other feedstocks, specifically corn, have become expensive to use in rations. Feed peas have become a viable substitute while maintaining sufficient protein and energy levels.
Lentil prices have softened over recent months as export demand has slowed. New crop harvest in many parts of the world will be in full swing during the next few months, further reducing demand. India started lentil harvest this month while Turkey's harvest will begin in late May.
The chickpea market maintained a bullish tone as reports of problems with Mexico's harvest were verified. Frost in February has impacted yield prospects for Mexico's Kabuli chickpeas. A smaller crop has also been projected for Turkey as acreage was lost to cotton, cereal grains and oilseeds.
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