Situation report — August 2011

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Canadian canola production expected to be a record

Statistics Canada surveyed 15,200 Canadian farmers between July 25 and August 2, 2011 and published the first production estimates on August 24. Prairie farmers anticipated a record harvest of canola, as well as higher volumes of barley, oats and wheat compared to 2010. Farmers in Ontario and Quebec anticipated a smaller crop of corn for grain in 2011.

Western Canadian farmers expected canola production to increase by 11.2% to 13.1 million metric tonnes as a result of record harvested acres. Harvested area was estimated at 17.9 million acres, up 11.6% from 2010`s record acres. A yield of 32.3 bushels per acre was reported.

Total Canadian wheat production was estimated to reach 24.1 million metric tonnes in 2011. This is an increase of 4.0% over 2010, when 23.2 million metric tonnes were harvested. In spite of planting delays throughout much of Manitoba and Saskatchewan, Canadian farmers anticipated harvesting 21.1 million acres of wheat, approximately 3.4% more than in 2010.

Barley production in the Prairies was estimated to rise 11.1% in 2011 to 7.7 million metric tonnes. Yields were expected to increase by 7.3% to 63.6 bushels per acre. Farmers predicted harvesting 5.6 million acres, a rise of 200,000 acres from 2010. Prairie oat production was also expected to be higher as larger yields were estimated. Production could reach 2.5 million metric tonnes based on a yield of 77.4 bushels per acre and harvested area of 2.1 million acres.

Dry pea production in Saskatchewan and Alberta was expected to reach 2.1 million metric tonnes. This was a 25.6% decrease from 2010 when 2.9 million metric tonnes were produced. Harvested area was estimated to be down 33.0% to 2.2 million metric tonnes as a result of spring flooding throughout much of the pulse growing area of Saskatchewan. Lentil acres also experienced a large reduction as producers anticipated harvesting 2.5 million acres, 23.4% less than 2010. A 7.4% increase in yield helped to offset some of the decrease in acres but production was still expected to decline by 17.8% to 1.6 million metric tonnes.

Approximately 2.9 million acres of corn for grain were expected to be harvested. This would be a slight decline from 2010 when almost 3.0 million acres were harvested. Total production was estimated at just under 10.0 million metric tonnes. In Quebec, total corn for grain production was anticipated to be 2.9 million metric tonnes, down 13.8% from 2010. Production estimates for Ontario were expected to decrease 14.8% to 6.6 million metric tonnes. Yields in both provinces were reported to be down from 2010 after a hot, dry growing season.

In spite of a 2.4% increase in harvested area, production of soybeans was expected to decline by 11.2% to 3.9 million metric tonnes. Yield estimates were down 13.4% in comparison to 2010. Quebec production was estimated to remain virtually unchanged while production in Ontario could decrease 15.2% to 2.6 million metric tonnes. Manitoba farmers expected to produce 405,500 metric tonnes.

World agricultural supply and demand updated

The United States Department of Agriculture (USDA) released updated world agricultural supply and demand estimates on Thursday, August 11.

Global wheat supplies for 2011/2012 were raised 11.4 million metric tonnes to 863.8 million metric tonnes because of higher beginning stocks and a sharp increase in production. World wheat production was increased by 9.7 million metric tonnes to 672.1 million metric tonnes. Larger production for FSU-12, India, China and EU-27 more than offset reduced production in Argentina. Imports were projected to be 3.0 million metric tonnes higher with increases for South Korea, Algeria, Indonesia, Syria and Kenya. Higher than expected feeding in EU-27, China, Canada, South Korea and the United States resulted in an increase in world feeding estimates to 127.9 million metric tonnes. An increase in exports of 4.0 million metric tonnes for Russia and 1.5 million metric tonnes for Ukraine more than offset a decrease of 1.5 million metric tonnes for Argentina, 1.4 million metric tonnes for the United States and 1.0 million metric tonnes for Canada. The net result was an increase in global exports of 1.3 million metric tonnes to 131.3 million metric tonnes. World wheat ending stocks were projected at 6.7 million metric tonnes higher at 188.9 million metric tonnes.

For the 2011/12 crop year, global coarse grain supplies were lowered after a 3.6 million metric tonne increase in beginning stocks was more than offset by a 14.0 million metric tonne reduction in production. The USDA estimated global supplies to be 1,297.2 million metric tonnes. The decline in global production was a result of reduced corn and sorghum production in the United States. Foreign corn, barley and oats production were all expected to be higher. Global exports for 2011/12 decreased slightly as reduced US corn and sorghum exports were mostly offset by higher than expected foreign corn and barley shipments. Global coarse grain consumption was estimated to be 1,150.0 million metric tonnes, a decrease of 8.4 million metric tonnes from last month, because of lower world corn feed and residual use.

Global oilseed production for 2011/12 was projected at 451.4 million metric tonnes. This represented a 4.1 million metric tonne decrease from estimates the previous month and was a result of a decline in the US soybean crop. Reductions for soybeans, rapeseed and cottonseed only partly offset increases for sunflower seed and peanut production.

MGEX changes Hard Red Spring Wheat contract

The Minneapolis Grain Exchange (MGEX) Board of Directors removed the United States origin condition for wheat delivered against its Hard Red Spring Wheat (HRSW) futures contract, effective no later than the May 2013 contract month. By removing the condition, MGEX allows HRSW from outside of the United States to be delivered on the contract, provided it meets contract specifications.

According to Richard A. Dusek, Chairman on the Contracts Committee and Second Vice Chairperson of the MGEX Board, the removal of the delivery condition was the first step of a multi-phase approach by the Contracts Committee in ensuring that the MGEX Hard Red Spring Wheat contract is adaptable to the global marketplace. Mark G. Bagan, President and CEO, said in a statement that this change is the first step envisioned for enhancing the appeal of the HRSW futures contract to global market participants by ensuring that it meets the needs of buyers and sellers of spring wheat from around the world.

First ship arrives at Port of Churchill

The first ship, the MV Pacific Bulker, arrived at the Port of Churchill at the beginning of August to load approximately 27,000 tonnes of Canada Western Red Spring wheat destined for Nigeria.

In 2010, the port exported 656,298 tonnes of grain, second only to the record 729,000 tonnes in 1977. Six hundred thousand tonnes of that grain were wheat and durum exported by the CWB. For the first time in three years, non-board crops were also handled by the port, including 43,000 tonnes of canola and 12,000 tonnes of human-grade dry peas.

ICE Futures Canada to list serial options on canola futures

ICE (IntercontinentalExchange) Futures Canada announced that, effective on Trade Date September 26, 2011, serial options on ICE canola futures would be list for trading on the ICE trading platform. On Trade Date September 26, serial options contracts would be listed for December 2011, February 2012 and September 2012. Going forward, the canola options listing cycle would be the nearest six regular options months plus the nearest September option on November futures plus the nearest two serial option months, excluding September.

Traditionally, options on futures contracts have been listed in months corresponding to the underlying futures contract and expire near the end of the month preceding the futures delivery month. It is also possible to list additional options contracts, with differing expiry dates, for the same underlying futures contracts. These options contracts are referred to as serial options. One feature of these additional options is that they facilitate trading at smaller premiums than regular options contracts, due to their shorter time to expiry.

Alliance Grain Traders buy Australia pulse processor

Alliance Grain Traders Inc. (AGT) announced the acquisition of all assets of Canz Commodities, a chickpea and pulse processor in Narrabri, New South Wales, Australia. The assets included real property, storage and related handling equipment and a processing plant for pulses and grains, specializing in desi and Kabuli chickpeas, faba beans, mung beans and albus lupins. The Narrabri facility is located 500 kilometres from Sydney and is equipped with direct rail access with three times dedicated weekly container train service direct from the facility to Sydney.

According to a release from AGT, the total investment, including the cash acquisition prices and a budget for improvements, was CAN$8.0 million. The facility is currently operational with capital expansions and improvements planned to commence immediately.

Next generation of biotech crops undergo field trials

Last month, the Canadian Food Inspection Agency granted regulatory approval to a drought tolerant corn, MON 87460, developed by Monsanto and BASF. MON 87460 could become the first drought tolerant crop grown in North America that was developed through a combination of breeding and biotechnology.

Monsanto plans to carry out on-farm field trials of MON 87460 in the Western Great Plains Region of the United States in 2012, once regulatory approval is granted. Field trials were already underway in Canada.

MON 87460 represents the first generation of Monsanto's drought tolerance technology. It is targeted at producers in the dryland region of the US Corn Belt where annual water shortages are experienced. The second generation of drought tolerant corn, which is halfway through the company's research and development process, may be better suited for Canadian producers because it is designed to provide yield stability during intermittent drought.

Traits combating environmental stresses are still five to ten years away from commercialization in canola and wheat.


The Canadian Wheat Board (CWB) released its updated Pool Return Outlook (PRO) for the 2011/12 crop year on August 25. Wheat values increased from last month by between $12 and $18 per metric tonne, depending on class, grade and protein level. Durum wheat values went up between $6 and $16 per metric tonne. Pool A feed barley PRO was raised by $12 per metric tonne while malting barley was unchanged from last month.

Hot weather supported the US corn futures market into August as traders remained concerned about reduced output. Many believed that corn suffered damage due to high temperatures during a critical period of development in July. Strength in the US dollar and steep losses in equities and crude oil weighed on prices, limiting some of the early gains. Traders moved to reduce risk over concerns about the world economy. Following the release of USDA's monthly supply and demand report on August 11, futures prices closed sharply higher as deeper than expected cuts were made to the agency's output estimate for the United States. US corn futures continued to be supported as the month progressed by traders factoring in potential crop losses while attempting to find price levels that would slow demand for new crop inventories. Supply was expected to shrink down to precariously low levels. Released August 23, the weekly USDA crop progress report showed greater than expected crop deterioration. The declining yield expectations and worries about tight supplies underpinned the market. While demand was slowing at current high prices, supply was decreasing at a faster rate. Near the end of the month, fresh export demand added further support to futures' prices.

US wheat futures stumbled under pressure from broad weakness in commodities and equities as investors fled riskier assets. Declining demand because of increased competition for export business from Russia also pressured prices lower. Some spillover support from corn futures kept wheat prices from falling too far. Tighter corn supplies and higher corn prices indicated livestock producers could increase demand for wheat for feed. Concerns about tightening supplies of high quality wheat also underpinned prices, most notably on the Minneapolis Grain Exchange (MGEX). In its August 11 supply and demand report release, the USDA reduced its harvest estimate for the protein-rich spring wheat crop. At mid-month, US wheat futures moved higher on news of fresh export demand and spillover support from corn futures. The announcement of a weekend sale of US wheat to Saudi Arabia and news of Algeria buying wheat in the world market was supportive. Minneapolis spring wheat prices rose to two-month highs on crop and acreage concerns. Disappointing yield reports from spring wheat harvests and concerns that the United States will harvest less acres amid higher amounts of acres farmers took preventative planting insurance on combined to increase worries of smaller crop potential. As the harvest got underway in the Northern Plains and yields emerged, worries about a smaller than expected spring wheat crop pushed prices higher on MGEX. Concerns over the hard red winter crop in the Southern Plains and delayed harvest operations in Europe also boosted the market.

Ongoing concerns about crop production potential supported US soybean futures throughout much of August. Potential yield reductions from hot Midwest weather as the crop headed into its critical pod fill stage underpinned the market. Pushing prices lower were long range forecasts cooler and wetter conditions, declines in crude oil and equity markets and fears over a slowing United States and world economy. US soybean futures gained back some of their declines after the August 11release of USDA's supply and demand estimates. Government crop forecasts projected that demand would outpace new crop production. The lower than expected output and yield forecasts were supportive for soy prices because it showed the need for demand rationing and incentives for South American farmers to produce another record crop in 2012. Traders re-established risk premium in the market over concerns about key areas in the Midwest lacking sufficient soil moisture during the crop reproductive phase.

Winnipeg canola futures started August on a weaker note as elevator company hedge selling, sentiment that canola crops in Western Canada were in mostly good shape, ongoing concerns about the state of the world economy, steady farmer selling and chart based liquidation orders. Some underlying support came from steady domestic crusher demand and the pricing of old export business. Futures' prices finished with strong gains on August 11, supported by the smaller than expected production estimate for US corn and soybeans from USDA. Canola moved higher with spillover support from Chicago Board of Trade (CBOT) soybean and soyoil futures. Buy-stop orders were also triggered, further amplifying the gains. Tempering some of the advances was the development of the Western Canadian canola crop. The early stages of swathing were underway in some regions of the Prairies. End-users were holding back purchases in hopes new crop values would be down from current levels. Canola futures followed outside markets as the month progressed, moving with the CBOT soy complex, Malaysian palm oil and European rapeseed futures. The slowing pace of farmer selling underpinned prices, as did steady demand from domestic crushers and pricing of old export business. The ongoing development of canola crops across the Canadian Prairies and the approaching harvest limited some of the upside price potential.

Field pea markets maintained a firm note throughout the summer, supported by worries over the potential size of this year's crop globally and relatively tight stocks at the grower level. The availability of new crop product from France and Ukraine as harvest operations got underway at the end of July weakened prices somewhat. However, while yields in Europe were thought to be better than expected, they would not make up for the reduction in seeded acres. Total European production was expected to be down over last year. Doubts about India's ability to maintain last year's pulse production levels for the kharif season provided some added support to the market. By mid-month, seeding of pulse crops was 11% behind last year. Improving rainfall levels during the monsoon season could stimulate a last minute attempt to expand pulse area in the country. The slow start to this year's North American pea harvest and worries about the size of the European crop added strength to the market in August. However, there was evidence of a weaker sentiment in yellow peas as some processors temporarily withdrew from the market in response to rising grower selling interest and limited end user buying interest.

Lentil markets maintained a quiet tone throughout much of the July and August. The summer holiday period is normally associated with a steep reduction in buying interest in Europe and other northern hemisphere countries. The late start to this year's crop in both Canada and the United States added uncertainty to the market and increased the risk of yield and quality losses. Many processors in both Canada and the United States were unwillingly to offer new crop product until harvest started in mid-August. The North American harvest gained momentum as August progressed. Initial samples of new crop product were of much higher quality than last year's average.

International chickpea markets remained strong throughout August as available supplies from net exporting nations continued to tighten. Poor crops in Australia and Turkey have led to an increase in the value of chickpeas in Western Canada. Markets were anticipating the North American harvest to help relieve some demand pressure until new crop supplies are available from Australia later in the year and from India in the new year.