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Highlights

Situation report – December 2007

The Husky Energy ethanol plant expansion in Minnedosa, Manitoba is complete and it will slowly increase ethanol production.  The Manitoba government has mandated that an initial average 5% ethanol be blended into all gas sold in the province.  On April 1, 2008, it will increase to 8%.  The plant uses Manitoba wheat and corn as feedstock.   Demand for the by-product of this plant, distillers grains, is reported to be good as feeders search for lower cost alternatives in a rising feed grain market.  Distillers grains sell at a discount to feed grains such as feed barley or corn.

The Canadian Grain Commission announced a series of changes to the Canadian grain handling system.  Inward inspection and weighing of grain being delivered to terminal and transfer elevators will be discontinued by CGC staff.  However, private service providers will be permitted.  Export shipments will continue to be weighed and inspected.  Further, CGC is removing the requirement for licensed grain dealers to post security bonds which were used in cases of insolvency.

On August 1, 2008, the number of malting barley grades used in Canada will decrease from three to one.  The new grade named ‘select malt barley’ is being implemented by the Canadian Grain Commission because the existing grades were not being used by the malting industry.  The malting industry asked that malting or designated barley be removed from the Canadian Wheat Board jurisdiction. This was to remove any market uncertainty with respect to the possible removal of the CWB monopoly on sales of malting barley.  Further, there was concern that the existing pooling system did not send the appropriate price signals that farmers needed on which to base their seeding decisions.  The CWB intends to announce a new program called CashPlus to address these concerns in the near future.

The Canadian Wheat Board recommended final payments for the 2006/2007 crop year be paid with the interim payments announced November 16th.  These payments represent the balance of the money owing farmers after the grain has been marketed by the CWB and the operating costs have been deducted.  The total payments are shown in table 23 of this publication.

The US Department of Agriculture projected US wheat ending stocks for 2007/2008 down 0.87 million tonnes in December reflecting higher than expected domestic use and exports. At 7.62 million tonnes, this year’s US wheat ending stocks were at the lowest in 60 years.  Meanwhile, December world wheat ending stocks were increased 0.26 million tonnes from the November forecast to 110.06 million tonnes. The increase was caused by lower exports and domestic use.  World wheat production for 2007/2008 was decreased by 1.0 million tonnes because of inferior projected output for Argentina, Canada, and the EU-27.  Production for Canada went down by 0.6 million tonnes in line with the latest crop estimates from Statistics Canada.

USDA decreased US ending stocks of corn by 2.54 million tonnes to 45.63 million tonnes as a result of stronger-than-expected exports.  If 2007/2008 corn exports reach the projected 62.23 million tonnes, exports would surpass the previous record of 60.96 million tonnes in 1979/1980. 

US soybean ending stocks for 2007/2008 decreased by 0.68 million tonnes, to 5.03 million tonnes, a 68% drop from 2006/2007.    World oilseed ending stocks were reduced 1.8 million tonnes to 54.5 million tonnes.  The decline was a result of lower soybean stocks in Argentina and in the United States. World oilseed production was projected at a record 391.3 million tonnes, an increase of 0.9 million tonnes from the November projection.

The Australian Bureau of Agricultural and Resource Economics (ABARE) forecast 2007/2008 winter crops up slightly from previous forecasts.  Total crop production was estimated up significantly from the drought of 2006/2007 but still well below the five-year average.  With short crops of wheat and barley, traditional exports of these crops were expected to be limited.  The estimates were mainly within traders’ expectations. ABARE said that area devoted to summer crops in 2007/2008 would increase 37% as good rainfall in the fall would prompt a large area of grain sorghum to be planted in key growing areas.  However, a lack of irrigation water was expected to constrain the area planted to cotton and rice.

Prices

US corn futures’ prices continued to rise over the month in a battle with soybeans to maintain seeded area next spring.   Higher crude oil futures’ prices and a larger-than-expected decline in forecast US ending stocks in the light of strong demand created was also supportive to the corn market.

Oat futures’ prices were fairly flat over the month, rising marginally on fund buying and spillover strength from other crops.  A lower Statistics Canada production estimate had little market effect as forecast carry-over stocks were thought to be adequate.

Soybean futures’ prices continued to rise, pushed higher by speculative buying, worries about dryness in Argentina, potential of increased biofuel use under a new US energy bill and the support of soybean meal futures’ prices.    Soybean prices were also supported by the need to ‘buy’ acres next spring. 

Soybean meal futures’ prices continued their dramatic upward spiral with good export and domestic demand and a shortage of feed wheat being supportive.  Soybean oil prices were volatile on variations in crude oil futures’ prices but were supported by the rest of the soybean complex. 

The spread between old and new crop US wheat futures’ prices narrowed.  After early December rallies, prices retreated when USDA cut its forecast for 2007/2008 ending stocks as traders had expected.  However, technical buying soon pushed prices to record highs.  Worries about tight supplies, the need to secure wheat area in the spring and good demand have generally been supporting wheat prices.

Winnipeg canola futures’ prices trended up over the month on weakness in the Canadian dollar.  Farmer deliveries slowed on poor weather, the approaching holiday season and the desire by some farmers to defer taxes to 2008.  Deliveries were approximating the previous year’s level.  Farmers were anticipating the high canola prices to continue well into 2008 on strong export demand and lower production in the European Union where biodiesel demand is strong. Domestic crush demand will also continue to build, especially with new crushing plants coming on stream. Japan’s Mitsui and Co. bought a 40% partnership stake in the Yorkton, Saskatchewan canola crushing plant planned by Louis Dreyfus Canada.  The plant is expected to open in mid-2009.  James Richardson International is also planning a crushing plant in Yorkton, to open in late 2009.

Feed barley prices showed more strength in December with talk of new export business and farmer hesitancy to deliver to country elevators.  Western barley futures’ rallied on a weaker Canadian dollar which made US corn more expensive to import to Canada.

Field peas continued to reach high historical levels, with prices rising since the harvest.  Most of this market strength came from strong demand from India.  Indian buyers have been willing to pay whatever price it takes to secure their needs in an effort to manage food inflation in the country.  The Indian government reported that it will be deficient of pulses for at least the next two years.  This should help to support prices and production into the next year and beyond.  Increased international demand for food peas resulted in higher exports for the first four months of the 2007/2008 crop year in comparison to the previous year, even though feed exports to European buyers plunged.

With the high demand for Canadian peas for export markets, feed peas priced their way out of livestock rations a long time ago.  Prices continued to hold steady above economic thresholds.  A low supply of feed peas helped to put upward pressure on prices; mostly human consumption peas were harvested this year.

Lentil markets were quiet as exporters remained busy filling earlier sales commitments ahead of a seasonal decline in trading interest.  Combined with ongoing buying interest for the opening quarter of the 2008 calendar year and heavy split pea commitments, processors were kept busy.  In turn, this activity supported North American spot markets with prices holding steady.

Low selling interest by growers resulted in a quiet market for Kabuli chickpeas.  Grower bids remained relatively unchanged.  Strong demand from India for Desi chickpeas held prices steady.

Yellow mustard decreased slightly in price while oriental and brown mustard prices held steady.  Canary seed, oil-type sunflower seed, and confectionary sunflower seed maintained their prices or saw modest increases as seasonal slowdowns in domestic trading activity began.