Situation report — June 2011

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Preliminary crop estimates released

Statistics Canada released preliminary estimates of principal field crops on June 23, 2011 based on a survey of approximately 25,000 farmers conducted between May 25 and June 3. Seeding was not complete in many areas as continued rainfall and cooler than normal temperatures delayed seeding. At the time of the survey, Manitoba had the lowest seeding progress with only 38% complete province wide. Ontario was next at 44%, followed by Saskatchewan at 69% and Alberta at 85% complete.

Prairie producers planned to seed a record 19.6 million acres of canola. This was a 17.7% increase over 2010 seeded acres, which was also a record year. Saskatchewan producers reported the largest increase at 2.4 million acres more than in 2010. Alberta producers estimated canola acres to increase by 690,000 acres while Manitoba showed a decrease in acres of 140,000.

Strong prices encouraged Canadian farmers to expand area sown to wheat. Farmers had seeded or intended to seed 23.6 million acres. Durum wheat acres were expected to increase by 38.9% to 4.4 million acres. This was just slightly below the five-year average of 4.7 million acres. Wheat excluding durum area was expected to be 19.2 million acres, an increase of 7.2% from 2010.

Producers reported that they had seeded or intended to seed 3.8 million acres of oats and 7.1 million acres of barley. The five-year averages were 4.3 million acres and 9.0 million acres of oats and barley, respectively. Both crops also showed increased area over 2010 as good prices and strong demand have encouraged producers to return to more traditional crops.

A total of 3.0 million acres were seeded or planned to be seeded to corn for grain. Quebec producers planned to sow 4.0% more acres to corn for grain while Ontario producers maintained area at the 2010 level of 1.9 million acres. Manitoba producers were expected to seed 190,000 acres to corn for grain, a 2.8% increase from 2010.

Canadian producers expected to plant a record area to soybeans in 2011. Acres rose 6.0% from last year to 3.9 million acres. Quebec producers increased plantings 7.6% to 696,800 acres. In Ontario, producers seeded or intended to seed 2.4 million acres. This area was slightly lower than in 2010 by 15,000 acres. Manitoba producers planned to expand area seeded to soybeans by the largest margin. Total area could reach 690,000 acres, an increase of 32.6% from last year, if spring weather allowed seeding operations to continue.

World supply and demand estimates updated

The United States Department of Agriculture (USDA) released updated world supply and demand estimates for the 2011/2012 crop year on June 9, 2011.

Global wheat supply projections were reduced as higher beginning stocks were more than offset by lower production. Beginning stocks were increased by 4.9 million metric tonnes in response to larger stocks in Russia because of reductions in feeding in prior years. World wheat production was reduced by 5.2 million metric tonnes to 664.3 million metric tonnes. Production would still be the third highest on record. The lower estimate was mostly due to a 7.1 million metric tonne decrease in EU-27 wheat output. Persistent dryness in France, Germany, the United Kingdom and Poland has lowered yield prospects. Production was also decreased by 1.0 million metric tonnes for Canada because of flooding and excessive rainfall.

For 2011/2012, global wheat trade estimates were increased slightly from last month. Imports to EU-27 were expected to rise by 0.5 million metric tonnes while exports were lowered by 3.0 million metric tonnes. However, the reduction in EU-27 exports was offset by increases for Australia and Argentina.

Lower beginning stocks and production resulted in a downward revision of coarse grain supplies for 2011/2012. Reduced US corn production, lower EU-27 barley production and reduced corn beginning stocks in China more than offset increases in China corn production. Global corn trade was raised slightly because of higher import projections for EU-27 and larger exports for Ukraine. Corn ending stocks were revised lower by 17.3 million metric tonnes. Increased usage in China and a large drop in US ending stocks accounted for most of the decline from previous estimates. Global corn stocks were estimated to be 111.9 million metric tonnes for 2011/2012, the lowest level since 2006/2007.

Global oilseed production was lowered to 456.9 million metric tonnes, mainly due to reduced rapeseed production. Dry conditions in April and May in the main producing areas of France and Germany led to a 1.2 million metric tonne decrease in EU-27 rapeseed production. Canola production was also lowered for Canada as excessive spring moisture reduced planted area. China soybean production decreased to 14.3 million metric tonnes as a result of producers shifting acres to corn.

Russia announces end of export ban

Russian Prime Minister Vladimir Putin announced that the country's grain export ban will end on July 1. The government had banned exports of wheat, barley, rye, corn and flour in August, 2010 after a severe drought and heat wave reduced the country's grain production by 37%. Spring planting in 2011 was 10% higher than the previous year while the winter wheat harvest had been good. Russian Agriculture Minister was quoted as expecting an 85 to 90 million metric tonne grain crop, versus 61 million metric tonnes last year. Soviet Econ, a Moscow-based think tank, estimated a total crop of 80 to 85 million metric tonnes, because of ongoing dryness in the Volga region.

The Russian Grain Union said up to 15 million metric tonnes of grain, including 13 million metric tonnes of wheat and 2 million metric tonnes of barley could be available for export. Movement could be brisk as end users and exporters try to trade as much Russian grain as logistics and economics allow for fear of policy change as surpluses dwindle. The Central Bank of Russia has already proposed introducing a flexible system of duties, similar to those used for oil products, which can be adjusted each month depending on prices in the international markets. Central Bank Chairman Sergei Ignatyev stated that the resumption of grain exports poses the single greatest inflationary threat to Russia's economy. The export duties would help to keep domestic prices lower and food inflation under control.

Prior to the Russian government's announcement, Ukraine announced that it would also end quotas on grain exports at its next Cabinet meeting. Ukraine's 2011 production was reported to be significantly higher than the 45 million metric tonnes originally forecasted by regional governments in the country.

Resumption of trade with the Former Soviet Union (FSU) was expected to weaken world wheat prices initially. However, sufficient crop problems exist in the United States, Canada and European Union to keep prices from falling too far.

New snack corn processor coming to Chatham

A new plant that will process local corn into snack food has been announced for Chatham, Ontario. Dover Corn Products Ltd., owned by Gerald Lozon, plans to install a modern corn mill that will produce high-end corn products in what used to be a Redpath Sugar plant. Dover expects to purchase 6,000 acres of corn from local farmers and will employ 13 to 15 workers at the plant. The plant will produce ground and bagged Kent County corn. The main customer for the products will be GrandPapa's Canister Snacks Inc. of Detroit, Michigan.

Viterra acquires pulse company

Viterra Inc. announced the acquisition of Premier Pulses International Inc., a processor and merchandiser of peas and lentils based in Minot, North Dakota. The agreement was signed on June 15 and closed on June 20, 2011.

The facility includes cleaning and processing equipment and a finished product warehouse where a variety of locally sourced peas and lentils are stored, processed, bagged and shipped to customers worldwide. Premier Pulses International also has a marketing office in Lewiston, Idaho which is also included in the purchase.

Legumex Walker files prospectus

Legumex Walker Inc. (LWI) filed a preliminary prospectus with the securities regulatory authorities in each province and territory in Canada, except Quebec, in connection with a proposed initial public offering of its common shares.

LWI will combine two large special crop companies and a Washington state canola crushing operation. It will include Roy Legumex Group of Companies from St. Jean Baptiste, Manitoba, Walker Seeds Ltd. of Tisdale, Saskatchewan and 85% ownership of Pacific Coast Canola (PCC) of Seattle, Washington. The company will be one of the largest processors of pulse and special crops in Canada with nine processing facilities located in key growing regions throughout Manitoba and Saskatchewan, a global sales, logistics and distribution platform and access to multimodal transportation capabilities. Roy Legumex has processing plants in St. Jean Baptiste, Morden and Plum Coulee, all of Manitoba and one plant in Richardson, Saskatchewan. Walker Seeds has four processing plants in Saskatchewan. The PCC canola-crushing operation, which has not yet been built, will be a 1,100 tonne per day canola oilseed processing facility and will further increase the company's geographic and product diversification.

The preliminary prospectus had not yet become final for the purposes of the sale of securities. No sales or offers to buy the securities would be accepted until a receipt for the final prospectus has been issued.

Mexico closed to Canadian canaryseed

Mexico has once again closed its ports to Canadian canaryseed. An interim agreement that had allowed exports to continue expired on June 23, 2011.

Mexican officials began to automatically reject any shipment of canaryseed that was found to contain quarantined weed seeds, without allowing them to go for re-cleaning. Shipments found to be clear of the quarantined weeds could proceed to buyers.

There has been no evidence that other imported products have been subject to the same high level of scrutiny on weed seeds as is being applied to Canadian canaryseed, according to the Canadian Special Crops Association.

Mexico is Canada's largest canaryseed market and Canada has been Mexico's main supplier of product.

Richardson Oilseed Ltd. has new canola products

Richardson Oilseed Ltd. has developed two new margarine products using canola oil. Bake-It Sweet and Roll-It is significantly lower in saturated fat compared to other high palm content alternatives. Both products will be targets at the baking industry. Bake-It Sweet is a non-hydrogenated, all purpose baking margarine ideal for cookies, cakes, icing, crumble-style pies and toppings. It is gluten-free and is formulated for easy mixing. Roll-It is a non-hydrogenated, premium, roll-in margarine suitable for croissants and Danish pastries. According to John Haen, Vice-President of Nutrition, the new margarines meet trans fat regulations and offer commercial bakers a healthier ingredient.

Saturated fat-free sunflower oil unveiled

Dow AgroSciences unveiled a saturated fat-free Omega-9 sunflower oil at the Institute of Food Technology's Annual Meeting and Food Expo in New Orleans. The new Omega-9 sunflower oil will be one of the healthiest oils available with zero trans fat and high, heart-healthy monounsaturated fats.

With Omega-9 sunflower oil, food companies and manufacturers may significantly reduce or eliminate saturated fat from new front-of-pack labels, which will begin to appear on retail shelves in the United States within the next two years. It is all natural and can support an all natural package claim because the oil comes from NEXERAT seeds developed through traditional plant breeding.

Prices

The Canadian Wheat Board (CWB) updated Pool Return Outlooks (PRO's) for the 2010/2011 crop year on June 23, 2011. Wheat values were unchanged while durum wheat values were up $7 per metric tonne from the May PRO for milling grades No. 1, 2 and 3. Designated and feed barley decreased $3 and $1 per metric tonne, respectively.

New PRO's for the 2011/2012 crop year were released at the same time. Most wheat values changed slightly from last month, ranging from down $7 per metric tonne to up $2 per metric tonne, depending on grade and protein level. Durum wheat values increased $79 per metric tonne for milling grades of No. 1, 2 and 3. Barley was unchanged from last month.

US wheat futures started June lower on reports of projected global supplies rising as Russia ends its export ban on July 1, 2011. United States exporters were expected to lose business to Russia, especially in Asia and the Middle East. Prices rebounded on support from corn and lingering crop worries. Seeding progress in the Northern Plains continued to be hampered by rains and excessive moisture. Global wheat feeding was expected to rise as the Chicago Board of Trade (CBOT) wheat prices traded nearly even with corn. Beneficial rains in the dry areas of Western Europe and good progress in harvesting winter wheat in the Southern Plains of the United States weighed on prices and slowed upward price momentum.

At the beginning of the third week of June, futures fell to 6-1/2 month lows on the advancing US harvest and reports of good protein levels in the Southern Plains. Kansas City Board of Trade and Minneapolis Grain Exchange prices were underpinned somewhat by unfavourable rains and further delays in seeding progress in the Northern Plains. Wheat futures remained under pressure as the month drew to an end from the unloading of positions by commodity funds, sell-off in European wheat futures and harvest advances in the Northern Hemisphere, including the United States and Russia, bringing fresh supplies to the market. An expected increase in demand for soft red winter wheat for an alternative feed ingredient to high-priced corn and traders buying back previously sold positions provided support to the market, limiting some of the losses.

Ongoing supply worries supported CBOT corn futures to start the month. Concerns about lost acres from Missouri River flooding and acres that were not able to be planted in the eastern Corn Belt due to wet weather underpinned the market. US corn futures stumbled under outside market pressure and slow export sales. A negative US jobs report provided a gloomy outlook for the economy. Increased demand from Mexico and domestic end-users pushed prices higher. Ethanol producers bid up prices to secure feedstock while increasing output 0.7%.

Following an USDA report that lowered inventory outlooks more than expected US corn futures' prices closed at a record high. A change in weather that brought mild temperatures and wet weather to major corn growing areas of the United States increased expectations for a boost in crop conditions and pressured prices lower. The milder temperatures reduced stress on plants as the crop nears a critical growth stage while the wet weather maintained good soil moisture levels.

At the mid-point of the month, US corn futures tumbled under pressure from external markets, including falling crude oil and the climbing US dollar. Heavy selling by commodity funds resulted in an 11% decline in prices in one week. Markets remained under pressure throughout the last half of the month from weakness in crude oil, fund liquidations, forecasts of mild weather extending into July and concerns about a global economic slowdown. Ongoing worries about tight supplies remained in the market and limited some of the losses.

US soybean futures started June higher amid the uncertainty of acreage in face of tight supplies. Slow planting progress in the eastern Midwest encouraged traders to maintain risk premium in the market. Outlooks for large demand to return to the market through the 2011/2012 marketing year increased pressure on farmers to produce record crops in 2011.

Futures' prices stumbled following an USDA release estimating larger than expected inventories. Increased South American production and lower export forecasts added to the increased year-end supplies. Soybean futures also succumbed to broader-based selling pressure as investors reduced risk exposure across commodity asset classes. Lower crude oil and metal futures caused selling across grain and soybean futures.

The futures market continued to struggle under beneficial weather for crop development, faster than expected planting progress, spillover weakness in corn futures and the threat of declining demand from China. China raised its interest rates in June in an attempt to slow inflation, causing worries that the country will cut back on its purchases of soybeans. Widespread concerns surrounding the global economy pushed prices to a four-week low as traders were encouraged to reduce risk exposure in the market.

US soybean futures garnered support during the third quarter of the month from tight ending stock estimates and uncertainty about flooded soybean acreage in the Missouri River Valley. Potentially strong overseas meal demand added strength to offset the negative influence of slowing export demand for soybeans and worries about the global economy. The upward surge in prices was short lived as broad-based selling in grain futures spilled over to push soybean futures down to five-week lows. Favourable near-term crop weather, a firm US dollar and slowing demand combined to weigh on the market. The futures' prices found some support from traders' unwillingness to remove the risk premium from the market in-light of uncertainties surrounding growing season weather and acreage.

Steady commercial demand, including the pricing of old export business and covering of domestic crusher needs, supported Winnipeg canola futures as prices finished with modest advances during the start of June. Markets turned defensive with losses stimulated by the declines in outside oilseed markets, mostly good growing weather in the western regions of the Canadian Prairies and steady farmer deliveries into the cash market. Wet weather conditions moving across the southern regions of eastern Saskatchewan and western Manitoba underpinned the market, limiting some of the losses. Tight new crop supply projections also encouraged some upward price momentum.

Mid-month brought another downward price slide from a drop-off in demand from the domestic and export sectors, steady liquidation orders from speculative and commodity fund accounts, firmness in the Canadian dollar and declines in outside oilseed markets.

Ongoing concerns over unseeded and flooded acres in Western Canada provided a bottom to the canola market, limiting some of the losses.