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Situation report
March 2008

Seeding conditions

As spring arrived, some Western Canadian grain farmers were concerned about the low soil moisture content. By the end of March there was less than 5 cm of available soil moisture in southern Alberta, south western Saskatchewan, and south-central Saskatchewan. These areas were in need of more snow or rain in the next four to six weeks to ease concerns about dry soils ahead of spring planting. Planting normally begins in mid- to late April in southern areas, and in May in the northern grain belt. According to Weather and Crop Surveillance at the Canadian Wheat Board, the current La Nina weather pattern could indicate a higher probability of rain in March and April for the Canadian Prairies and cool weather. Cool temperatures have been preventing the start of field work in southern regions.

Also, the lack of snow cover in the southern regions of Western Canada’s grain belt and cold temperatures created concerns about winterkill in the winter wheat crop. However, in Ontario the Ontario Ministry of Agriculture, Food and Rural Affairs was optimistic that winterkill to the winter wheat crop would be minimal.

In the United States, precipitation in the central and southern Plains has been mostly below-normal, particularly in western areas. The US winter wheat crop was rated as good in the Midwestern Corn Belt, but much less so on the Plains due to the lack of moisture. There were worries that cool and wet weather in the central United States was reducing the likelihood of early corn plantings and the accompanying increased yields.

Railway study

The Canadian Wheat Board and groups of Canadian farm organizations commissioned an independent study by rail analyst John Edsforth. The study estimated that the railways in 2006/2007 made $175 million (or $6.25 a tonne) more than was considered fair and reasonable compensation for moving grain under the previous Western Grain Transportation Act, know as the “Crow Rate” (repealed in 1996). This year, the Canadian Transportation Agency found the railways had been allowed to earn revenue that was triple their actual costs for rail car maintenance and reduced the revenue cap for grain by about $72 million per year. To ship their grain, most western farmers use either a CN or CP lines. Over the past year, the Federal government has taken a number of steps to address the transportation issue facing farmers. The freight revenue cap was adjusted to take into account actual maintenance cost for the hopper car fleet. The railways counter that rail transportation of grain in Western Canada needs less regulation, and not more.

New rules for wheat deliveries

Producers delivering wheat to an elevator or grain terminal will need to sign a declaration form starting August 1st. This new rule was part of the Canadian Grain Commission's new quality management system, which replaces the former kernel visual distinguishability criteria that has been used for years. The form will validate that the wheat being delivered is eligible for a specific Western Canadian wheat class. Producers will also need to be ready to verbally declare the class of wheat they are delivering.

Argentina grain market paralyzed

The Argentinean government imposed a 44% export tax on soybeans which was intended to curb food inflation. However, this led to a strike by Argentinean farmers which closed the country’s largest port and paralyzed the grain market. Blockades by farmers prevented shipments of goods and reduced services. On March 19, with the harvest expected soon, the Argentinean Agriculture Secretariat pegged soybean crop production at 47 million tonnes.

USDA supply-demand

The US Department of Agriculture projected 2007/2008 US wheat ending stocks down 0.82 million tonnes in March because of higher expected food use and exports.  At 6.58 million tonnes, with the stocks-to-use ratio dropping to 10%, the ending stocks were forecast to be the lowest since 1946/1947. World wheat ending stocks increased 0.70 million tonnes to 110.40 million tonnes, mainly as a result of a higher projected world wheat production.

Global 2007/2008 oilseed production was projected at 390.09 million tonnes in March, down 0.22 million tonnes from February. US ending stocks of soybean were estimated at 3.81 million tonnes, down 0.54 million tonnes from the February estimate, the lowest since 2003/2004 and lower-than-expected by traders.

Prices

The US Federal Reserve slashed a key interest rate by 0.75 of a point to 2.25% on March 18th, to try to halt a spreading credit crisis. This was down from 5.25% in mid-September 2007. The cut gave financial and commodity markets only a temporary boost. On the next day, March 19, the broad-based market was down again and refocused its attention back on recession fears in the United States.

For the first half of March, world wheat prices continued their upward trend as world supplies continued tight. As rains improved crop prospects in Australia and farmers worldwide were preparing to sow more grain to take advantaged of high prices, wheat futures’ prices for May delivery fell $US0.90 to $US10.74 a bushel on March 19 on the Chicago Board of Trade (CBOT). Wheat prices had plunged $US0.20 since reaching a record on February 27 at $US13.49 a bushel. By the end of the month, CBOT May wheat had dropped $US0.35 to $US10.33 a bushel.

After a strong start in early March CBOT soybean futures’ prices decreased significantly in mid-month on speculative selling and a larger-than-expected Brazilian production estimate. By the end of the month soybean futures’ prices rose again because the farmer’s strike in Argentina increased demand for US soybeans, which were already in short supply.  

Corn futures’ prices followed the same trend as wheat and soybeans with a solid start in early March. Then the futures’ prices fluctuated on the lower side in the following weeks with declining crude oil prices to finally gain strength by the end of the month. The market stayed volatile as the traders geared up for March 31 USDA Prospective Plantings report, expecting a shift of US corn area back to soybeans.

Chicago oat futures’ prices fell about a US dollar a bushel during March, pushed down by spill-over from broad-based commodity fund selling.

Winnipeg canola futures’ prices plummeted nearly $200 a tonne in early March. Losses were associated with long liquidation orders sparked by turmoil in the North American Financial sector. The US credit crisis and the financial difficulties of the fifth largest US bank sparked the liquidation of long positions by speculative accounts of all kinds, including commodity funds in canola. Export demand slowed as buyers favoured the soybean market instead and waited to see how much lower canola prices would go. Near month-end, canola futures bounced back $72 a tonne over only two trading sessions but still ended the month down about $100 a tonne. 

The Canadian Wheat Board’s (CWB) mid-March Pool Return Outlook for the 2007/2008 crop year, increased the feed barley (No. 1 Canada Western Pool B) forecast returns by $23 per tonne to $275 a tonne. International feed barley prices were positively impacted by a March 5 decision of the Saudi Arabian government, the world’s largest importer of barley.  The Saudi government increased its import subsidy for barley by 71% to increase barley use and conserve wheat-flour supplies. This increase in the import subsidy re-invigorated demand for feed barley and increased the price of barley globally. After the CWB’s Guaranteed Delivery Contracts were already full, values eased again.

On March 14 the CWB submitted a recommendation to the Government of Canada for increases in the 2007/2008 initial payments. The board recommended an increase of $34 to $53 a tonne for wheat, $80 a tonne for milling durum wheat and $65 a tonne for Pool B feed barley.

The CWB will pay premiums and storage payments to farmers in the Churchill catchment area for wheat stored on-farm for shipment through the northern Manitoba port. Beginning March 18, farmers that were participating in the Churchill Corridor Guaranteed Delivery will receive a premium of $2.50 a tonne, plus monthly storage payments of $1.00 a tonne for Nos. 1, 2 and 3 Canada Western Red Spring wheat stored on-farm until it is called for shipment to the port.

High wheat prices and a lack of producer deliveries drove ethanol plants in western Canada to look to less expensive, alternative feed stocks, including corn. The Husky Energy ethanol plants in Minnedosa, Manitoba and Lloydminster, Saskatchewan turned to corn since it was cheaper and available locally. In March, Husky in Minnedosa was producing an ethanol blend of 75% corn and 25% wheat. Analysts expect strong ethanol and other demand to result in more corn seedings in Manitoba this spring. In the United States, the high price of corn ate away small ethanol producers’ profits.

Tightening stocks held field pea prices firm throughout March. Cash prices for both yellow and green peas remained steady as the market was unaffected by the wild volatility seen with other grains. Feed pea prices moved higher in export markets at the end of the month as the US dollar weakened relative to the Euro and other major currencies. Local spot prices, however, were unchanged for the month. Disappearance rates remained modest in Canada while exporters accumulated small amounts of feed peas for movement into export markets. Canadian field pea exports moved at a faster-than-normal pace so far this marketing season with over half of projected crop year exports being shipped by the end of January 2008. Domestic use was down from 2006/2007.  

Several classes of lentils passed their historic price highs in order to ration demand for Canada’s remaining lentils. Green lentil prices continued to be supported by good demand from Latin America and other destinations while small green lentils continued to move into European destinations. Red lentil prices were supported by food demand to Asia, although prices declined slightly during the month in comparison to green lentils. Small green lentils remained a surplus market. Demand in non-traditional markets continued to be stimulated in order to clear inventory. As the supply of other pulses continued to tighten, processors turned to small greens as a replacement.

Canadian canary seed established new record price levels on inter-dealer markets during the month but remained well below record highs for the grower market. Old crop supplies were not tight but there was concern that new crop area would not be enough to produce adequate supplies for the market. Tight stocks of canary seed in Argentina contributed to improved demand for Canadian canary seed throughout the month.

The sunflower seed sector began to feel the impact of the volatile market. The sunflower bird seed market slowed down as high prices for sunflower seed were passed down to the consumer. Oil-type sunflower prices also eased because of weakness in oilseed markets during the month. The Ukraine, a larger exporter of sunflower seed and oil, considered a limitation of both seed and oil exports until July 1, when its new crop would become available. Reports suggested that the Argentine and South African sunflower crops would be considerably larger than last year. This should help to relieve some of the pressure on supply.

Prices for brown and yellow mustard continued to improve over the past month as remaining supplies were rationed and area for 2008 was being bought.