Situation report — May 2011

View the most recent version.

Canadian stocks lower in 2011

Total stocks of most major grains and oilseeds on March 31, 2011 were lower compared to the same period one year ago mainly due to reduced production in 2010 after a wet growing season.

Lower production in 2010 resulted in a 1.5 million metric tonne reduction in total wheat stocks compared to one year ago. An estimated 15.6 million metric tonnes were in inventory at March 31, 2011. The largest decrease was in durum wheat where high domestic feed usage and low production combined to reduce stocks to 2.9 million metric tonnes. This was a 39.8% decrease compared to 2010. A slow export pace resulted in a slight increase in March 31 stocks of wheat excluding durum. Wheat excluding durum stocks rose to 12.7 million metric tonnes from 12.3 million metric tonnes in 2010.

Strong domestic demand from an expanded crushing sector and a brisk export pace worked together to reduce stocks of canola compared to the same period one year ago. Canola stocks were down 22.8% from 2010, to 4.8 million metric tonnes. On farm stocks were estimated to be 3.4 million metric tonnes while stocks in commercial positions were 1.4 million metric tonnes. On farm stocks were at their lowest level since 2007/2008 when production was only 9.6 million metric tonnes. Strong cash prices and demand, from both domestic and export markets, encouraged farmers to be active participants in the market throughout the crop year.

Total stocks of barley dropped 1.5 million metric tonnes to 3.5 million metric tonnes because of lower production after a wet growing season. Stock of oats on-farm and in commercial positions totalled 1.5 million metric tonnes, down 0.5 million metric tonnes from 2010.

Corn was one of the few grains to see an increase in total stocks at March 31 as stocks rose to 5.9 million metric tonnes. High crop yields and record production in 2010 led to the increase in stocks in spite of large exports.

Dry field peas saw a reduction in stocks to 1.3 million metric tonnes. Strong export demand from India and lower production caused total stocks to fall by 34.4% from 2010. Slow export demand and poor quality product combined to increase total stocks of lentils 175.2% over 2010. On farm stocks were estimated at 1.0 million metric tonnes while commercial stocks were 95,000 metric tonnes. Farm stocks set a new record, surpassing the previous record of 710,000 metric tonnes set in 2006.

Large carry-over stocks and a slow export pace resulted in higher total mustard stocks in spite of lower production. Stocks were projected to be 185,000 metric tonnes. In spite of restrictions on movement, the canary seed industry was able to maintain exports at a level comparable to the last two marketing years. As a result, on farm stocks were 17,000 metric tonnes and commercial stocks were 30,000 metric tonnes at March 31, 2011. Significantly lower production caused total sunflower seed stocks to drop 19.4% to 58,000 metric tonnes. Total chickpea stocks remained unchanged from one year ago in spite of higher production. Export demand has been good as other, major chickpea growing areas have suffered production problems.

World agriculture supply and demand

The United States Department of Agriculture (USDA) released its initial assessment of world crop supply and demand prospects for the 2011/2012 season on May 11, 2011.

Global wheat supplies for 2011/2012 were estimated to be 1% higher as higher foreign production was expected to more than offset lower beginning stocks and a drop in United States' production. Global production was projected to increase 21.4 million metric tonnes from 2010/2011 to 669.6 million metric tonnes. A significant increase in FSU-12 production and larger crops in India, North Africa, Canada and EU-27 accounted for most of the increase in wheat output.

World wheat exports were projected to be 127.3 million metric tonnes, an increase of 2%. Russia, Ukraine and Kazakhstan were expected to return to exporting because of increased supply, increasing competition for European Union and United States wheat. Global wheat consumption was estimated to be up 8.4 million metric tonnes with higher feeding and feed use while global ending stocks could be slightly lower than 2010/2011 at 181.3 million metric tonnes.

For the 2011/2012 season, world coarse grain production could reach a record 1.1 billion metric tonnes. Corn accounts for 84% of the year-to-year increase because of a 52.4 million metric tonne rise in production. Global corn production for 2011/2012 was projected at 867.7 million metric tonnes as production increases in the United States, Argentina, China, Russia, Mexico and Ukraine. Global output for barley, oats and rye was also raised, reflecting a recovery in production in Russia. Increased exports from Argentina, Russia and Ukraine should more than offset decreases for the United States, Canada and Brazil, leading to higher overall global corn exports. Global corn consumption was estimated at a record 860.8 million metric tonnes and ending stocks were set at 129.1 million metric tonnes.

The USDA projected world oilseed production for 2011/2012 to be at a record 459.2 million metric tonnes, up 2.2% from 2010/2011. Global soybean production was expected to be only slightly higher than 2010/2011 at 263.3 million metric tonnes. Higher harvested area and yields should increase Argentina's crop to 53.0 million metric tonnes. The Brazilian soybean crop could decrease by 0.5 million metric tonnes to 72.5 million metric tonnes as a return to trend yields offsets a larger harvested area. China soybean production was estimated to be lower at 14.8 million metric tonnes because of lower area and yields. For rapeseed, higher production for Canada, Australia, China and Ukraine offset lower production for EU-27. Larger sunflower seed crops in Russia, Ukraine and E-27 outweighed lower production in Argentina. Global crush was projected to increase 3.5% in 2011/2012, leading to a decline in world ending stocks of 1.5 million metric tonnes to 72.2 million metric tonnes.

Potential new ethanol plant for Chatham

Chatham, Ontario was one of the sites being considered for a G2 Biochem next generation ethanol facility in 2014. The facility would be built by GreenField Ethanol and a collaborative partnership at a cost of $100 to $180 million, depending on its size. It would be located alongside a first-generation corn ethanol facility already owned by the company. The final decision on the location will be based on two factors, including capital costs and availability of raw materials.

G2 Biochem is a Canadian based venture to develop and commercialize advanced renewable fuels and next generation ethanol. It is a collaborative effort between GreenField Ethanol Inc., industrial process solutions leader Andritz and enzyme developed Novozymes. G2 Biochem is able to use a variety of feedstocks, including corn cobs, corn stover, sorghum, bagasse (sorghum residue) and wood chips to produce ethanol. The technology used in the production process reduces toxins, has an 85% recovery of a plant-derived sugar xylose and 20-fold reduction in enzyme usage in the hydrolysis phase. It is feedstock agnostic and optimizes next-generation ethanol yields using all available sugars.

GreenField Ethanol Inc. is Canada's leading ethanol producer, producing 600 million litres of ethanol per year at four plants in Ontario and Quebec.

Seeding delays widespread

According to the Ontario Ministry of Agriculture, Food and Rural Affairs, 60 to 65% of the intended provincial corn acreage had been planted as of May 18. Areas with heavy soils that are slow to drain had planted less than 20% while areas with medium to light textured soils, or that received less rain, were 80 to 95% planted. Continued wet weather had forced growers out of the field, raising concerns of acres being switched away from corn.

Approximately 5 to 8% of the soybean crop had been planted by May 18. Soybeans are often planted during the second half of May so progress could pick up rapidly. If corn planting is delayed beyond June 1, considerable acreage could be switched to soybeans.

Winter wheat was growing despite the cool, wet conditions. Most producers had already applied nitrogen and were moving on to spraying for weed control. Spring cereals had made excellent planting progress. Approximately 90% of the crop had been planted by the May 15 crop insurance deadline date.

On May 16, Manitoba Agriculture, Food and Rural Initiatives released its weekly Crop Report. Seeding had just begun in the southwest region, with hard red spring wheat and canola going in first. The biggest concern for the area was the large number of acres still under water and when producers would be able to get them seeded. In the northwest region, seeding progress was slow and start dates continued to be delayed because of wet soils, cooler temperatures and localized flooding. The central region saw the highest seeding progress of the province as approximately 5% of acres had been planted despite wet and cold weather conditions. Flood waters were still a concern in low areas near the Assiniboine River and its tributaries. Some producers were unsure when field work would begin in those areas. Seeding progress remained slow in the Eastern region as producers continued to wait for fields to dry. With forecasted sunny and warm conditions, planting of wheat, canola and corn were expected to resume soon. Soybean acres would follow shortly after. Some seeding had started in the south Interlake but most areas still needed a week or more of good weather to allow for seeding operations to get underway.

According to Saskatchewan Agriculture's Weekly Crop Report, approximately 23% of the 2011 crop had been seeded by May 16. In comparison, the five-year average for this time of year was 44% seeded and in 2010, seeding was 28% completed. Significant seeding progress had been made in western regions of the province while producers in the eastern regions were just starting spring field work. The southeast region reported 8% seeded, the southwest region 36%, the east-central 11%, the west-central 30%, the northeast 14% and the northwest region 41% completed.

By crop, 46% of the field peas, 35% of the lentils, 28% of the durum wheat, 22% of the spring wheat and 20% of the canola had been seeded. There were many reports of very wet fields, especially in the eastern areas of the province. Across the province, cropland topsoil moisture was rated as 36% surplus, 62% adequate and 2% dry.

Warm, dry windy weather over a two week period allowed producers in Alberta to make significant progress in seeding operations, according to Alberta Agriculture and Rural Development. As of May 19, seeding was estimated at 57% complete. On average, seeding is about 65 to 70% complete at this time. Some winter wheat fields had been flooded and will need to be reseeded once field conditions permit. Early seeded crops had already emerged or were beginning to emerge.

Warm, windy conditions combined with a lack of rainfall had depleted much of the surface soil moisture in many areas, especially in the north east region. Provincially, surface soil moisture was rated at 1% poor, 22% fair, 50% good, 24% excellent and 3% excessive.

ICE Futures Canada prepares for end of CWB monopoly

ICE Futures Canada has started work on creating spring wheat and durum contracts if the Government of Canada follows through with its plan to end the Canadian Wheat Board's (CWB) monopoly over selling those crops. The barley contract would also be changed, making it more relevant for domestic and export markets.

Agriculture Minister Gerry Ritz had announced shortly after the Conservative's won a majority government in the federal election that he was aiming to end the CWB's single desk selling authority for the 2012/2013 crop year, starting August 2012. That date would give the government and industry time to carefully plan for the transition to an open market system for spring wheat, durum wheat and barley.

Meetings have been ongoing with producers, processors and grain handlers to assess their needs. The contracts would initially be set up like the canola futures contract and would be ready to launch well before the August 2012 target set by Minister Ritz. The spring wheat contract would compete against the Hard Red Spring Wheat contract currently traded on the Minneapolis Grain Exchange. The contracts would introduce a high degree of transparency into the Canadian market place, provide a hedge vehicle for grain handlers and domestic processors, provide a means to limit foreign exchange risk, and offer a method to manage inventory costs.

Prices

During the first week of May, Chicago Board of Trade (CBOT) corn futures fell 9.3% as investment money flowed out of old crop contracts, crude oil plunged to an eight-week low and export demand slowed. Prices rebounded sharply higher the next week on surging prices for crude oil and precious metals and weakness in the US dollar. Following the USDA's monthly release of supply and demand estimates on May 11, US corn futures finished limit down. USDA's increased inventory estimate surprised traders, who were expecting season-end supplies to decline or stay steady. Gains in crude oil and improved demand helped to reverse some of the losses, especially in the nearby contracts. By mid-month, weather concerns were pushing corn futures higher. In one week, prices gained 12% on worries farmers will not sow as many acres as expected because of wetness. Cool, rainy weather continued to delay planting in the northern Plains and eastern Midwest. Floods along the Mississippi River had also submerged some crop land, adding to potential acreage losses.

US wheat futures followed corn futures lower early in the month as the market got swept up in the broader commodity sell-off over concerns about slower consumption amid economic worries. Providing some support and limiting losses were fears of lost production and planting troubles. As the month progressed, US wheat futures' prices moved higher on concerns about poor weather reducing global output. Excessive rains and flooding continued to slow spring wheat planting in the northern US Plains and Canada and threatened the quality of the soft red winter wheat crop in the Midwest. Drought reduced the harvest potential of hard red winter wheat in the southern Plains. Western Europe, including Britain, France and Germany, was also dealing with heat and dryness.

Broad based commodity selling as investors reduced risk exposure pushed US soybean futures lower during the first week of May. Wetness in the eastern Midwest and the Mississippi Delta also pressured prices as the possibility of corn acres switching to soybeans increased. Prices turned around the following week on spill over strength from neighbouring grains and outside markets. Higher equity and crude oil futures and weakness in the US dollar index attracted speculative buying. Soybean futures' prices bounced around throughout the remainder of the month as outside influences drove the market. Weighing on prices were slumping demand from slower exports and a drop in domestic use; the potential of corn, rice and cotton acres switching to soybean acres as adverse planting conditions remained across parts of central US and the Mississippi Delta; and increased competition from record South American crops. Strength was found in planting and production uncertainties; reminders of tight supply; and spill over support from other grains. A tight supply scenario kept a level of uncertainty in the market. Slow seeding progress in the eastern Midwest and northern Plains raised issues of potential acreage and yield losses. Tight US supply stockpiles have placed increased pressure on farmers to grow bumper soybean crops in 2011. This may not be realised if the rains continue.

Losses on Malaysian palm oil and European rapeseed and weakness in the CBOT soy complex weighed on Winnipeg canola futures, sending prices lower early in the month. Declines were tempered somewhat by steady demand from the domestic crushing sector, lack of deliveries by farmers into the cash pipeline and seeding delays because of wet weather across most of Western Canada. Farmer selling and planting progress picked up mid-month to undermine futures' prices. Also adding downward pressure was the lack of fresh export business, the large supply of soybeans from South America on the global market and selling by commodity funds and speculative accounts. Persistent planting delays because of flooding and excessive moisture in eastern Saskatchewan and Manitoba supported canola futures' prices during the last half of the month. While good seeding progress was reported in Alberta and western Saskatchewan, dryness had slowed emergence in Alberta. Canola development was also impacted by colder than normal temperatures across the Prairies, including frost at the end of May. A weather premium remained in the market as uncertainty over new crop production grew, sending futures' prices higher through to the end of the month. Concerns over rapeseed production in Europe because of dry weather and lack of rains added to the uneasy tone of the market.

On May 26, the CWB released its May 2011 Pool Return Outlook (PRO) for the 2010/2011 crop year. Wheat values were unchanged to $6 per metric tonne higher than last month's PRO, depending on class, grade and protein level. Milling durum wheat increased by $6 per tonne while barley was unchanged from the April PRO.

The CWB also released its May PRO for the 2011/2012 crop year at the same time. Wheat values increased between $10 and $16 per metric tonne, depending on class, grade and protein level. Durum wheat was raised between $10 and $14 per tonne. Malting barley increased $22 per metric tonnes while Pool A feed barley was up $6 per metric tonne.

Field pea markets found some support from better than expected movement from Canada this month; however, exporters expect demand to slow through the summer period. India's Rabi season harvest was well underway, increasing the availability of locally originated pulses and reducing the need for imported product to meet demand. Indian importers have reported being well covered through to August. As a result, there will not be significant import demand until after the North American harvest. Sales to China were also expected to slow.

Prices for field peas were not likely to weaken over the medium term because of anticipated reductions in acreage in Canada, the United States and Europe. According to Brian Clancey of STAT Publishing, world dry pea crop was projected to decline by approximately 900,000 acres to 13.94 million acres. Production was forecasted to fall in the main dry pea growing areas, including Australia, Canada, the United States and France. Income projections for dry peas had worsened relative to corn, wheat, cotton and oilseeds. Farmers in most countries planned to reduce seeded areas for dry peas to take advantage of better income potential from other crops. Offsetting some of the smaller global dry pea harvest was record pulse production in India.

Lentil markets maintained a weaker tone under light trading throughout the month. Confirmation that on-farm stocks in Canada were at record levels because of the poor quality crop kept pressure on lentil prices. Market participants had hoped to see evidence that producers were selling more of the poorest quality lentils into livestock feed channels. The supply of better quality lentils at competitive prices from other locations was adequate enough to relieve any buying pressure that may have been developing. As the month progressed, concerns over the slow pace of Canadian seeding operations were beginning to enter the market. Participants focussed on medium term weather forecasts to anticipate the development of the crop.

International chickpea markets maintained a firm tone during May because of tight supplies and potential reductions in new crop acres. Mexico, the largest Kabuli chickpea supplier, had less product available because of frost damage early in the growing season. Producers in Canada and the United States planned to seed fewer acres to chickpeas in response to poor projected income returns, replacing them with more profitable and less agronomic challenging crops. Reports of contract defaults from non-traditional exporters, including sellers in India and Argentina, added support to prices for product from traditional sources.

Sunflower seed markets were supported by seeding delays in key US states. In the northern Plains, excessively wet soil conditions continued to keep seeding at a slow pace. Demand remained strong for old crop oil sunflower seed from crushers and bird food buyers, increasing the likelihood of tight stocks by marketing year end. This could support new crop prices as end-users try to replenish stocks. Seeding delays also added some uncertainty to the markets. As the season progresses, farmers may increase sunflower seed acreage if they cannot seed grains and other oilseeds before seeding deadlines. If new crop supplies rise above expectations, it could be harder for sunflower seed prices to maintain the same price spread with other oilseeds.