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Situation report
January 2009

US and world supply-demand

In January, the U.S. Department of Agriculture (USDA) projected global soybean production for 2008/2009 at 233.2 million metric tonnes, a 1.5 million metric tonne decrease from December. Dry weather in Argentina, Paraguay and Uruguay was mainly responsible for the decline. World ending stocks at 53.9 million metric tonnes were down from the December estimate but marginally above the previous year. US soybean production was projected at 80.5 million metric tonnes, the fourth largest on record. US soybean export forecasts significantly increased in January because of strong sales to China. However, domestic crush projections for 2008/2009 were reduced 0.8 million metric tonnes on lower domestic meal demand. US soybean ending stocks were projected at 6.1 million metric tonnes, a 9.8% increase from December due to the larger crop estimate and reduced domestic use.

Global corn production for 2008/2009 rose 5.1 million metric tonnes from the December projection. The increases, mainly in China, the United States, Mexico and FSU-12, offset reductions in Argentina and Brazil. World corn ending stocks were projected at 136.0 million metric tonnes, a 12.2 million tonnes increase from December. In January US corn production was projected at 307.4 million metric tonnes, the second largest crop on record behind 2007. US corn ending stock projections rose due to lower than expected exports and domestic use. Ethanol use was projected 2.5 million metric tonnes lower from the December forecast due to lack of profitability from ethanol refiners.

USDA decreased its global wheat production forecast for the 2008/2009 marketing year to 682.9 million metric tonnes, down 1.1 million metric tonnes from December. The decrease was the result of lower production in Argentina and the EU-27. Argentinean production was reduced 1.0 million metric tonnes from December projections due to an extended drought that reduced yields. World wheat ending stocks were up 1.0 million metric tonnes as a result of reduced feeding in the United States and South Korea. The USDA increased its projection for 2008/2009 US wheat ending stocks to 17.8 million metric tonnes, more than double the 8.3 million metric tonnes at the end of 2007/2008.

On January 12^th the USDA released the Winter Wheat Seeding estimates through the National Agriculture Statistics Services (NASS). Winter wheat seeded area for 2009 was estimated at 42.1 million acres, down 9% from 2008, a result of wet weather and a late row crop harvest. Soft Red Winter had the largest decline with 8.3 million acres, down 26% from last year.  

On the same day the NASS released its quarterly Grain Stocks report reflecting US grain stocks on December 1, 2008.  Corn stocks in all positions were down to 256.2 million metric tonnes, a 2% decline from December 1, 2007. Soybean stocks increased by 4% to 61.9 million metric tonnes from last year while all wheat stocks totalled 38.7 million metric tonnes, up 26% from 2007.  

Increasing canola crushing

Canola crushings in December were 387,297 metric tonnes, close to the record volume of 396,201 metric tonnes crushed in October 2008. Canola crushing has been increasing steadily since 2003 along with canola production which hit a record in 2008. Export demand for canola has been on the rise this crop year , particularly from China, Japan and Mexico. However, stocks at December 2008 were still a record 9.1 million metric tonnes, up 23.6% from last year as a result of the large available supplies.

Drought in South America

South American farmers struggled with dry hot weather in January. Argentina was going through its worst drought in 50 years and the Government was considering declaring a state of emergency in affected areas. According to Argentinean authorities, soybean, corn and sunflower seed crops were likely to be affected by the drought. Rainfalls were forecast for early February. Brazil was also struggling with dry weather. Many farmers complained that millions of tonnes of soybeans were damaged. Brazilian analysts and brokers reduced their earlier estimates for Brazil’s new 2008/2009 soybean crop. Brazil and Argentina are respectively the second and third largest world soybean producers after the United States.

Australian winter grains harvest

A harvest of winter grains, including wheat in Australia’s New South Wales and Western Australia states ended in mid-January. According to Australian officials this year’s production was well above last year which was badly affected by drought. This increased harvest permitted exports of bulk wheat from east coast ports to start again.

Agriculture component of Federal Budget

The Canadian federal budget announced on January 20^th included $550 million in agriculture funding. That amount was split between a $500 million Agricultural Flexibility Plan and $50 million to improve Canada’s slaughterhouse capacity. According to Agriculture Minister Gerry Ritz, the Plan will help farmers develop new technologies and promote environmental sustainability.

Biofuel Funding

The Federal Government has announced that it will invest $6 million into a research network to develop a feed industry in conjunction with the growing biofuels sector. Feed Opportunities from the BioFuels Industries (FOBI) will focus on creating high quality livestock feed from ethanol waste, also known as co-products or distillers grains. The FOBI network is a multi-disciplinary initiative composed of private, public and academic members.

The federal government will also be funding the Cellulosic Biofuels Network (CBN) which will make possible the creation of biofuels from agricultural waste and will help Canadian farmers seize new market opportunities in the energy sector. The CBN will receive $19.9 million from the Agricultural Bioproducts Innovation Program (ABIP).

Prices

In January, volatility in financial markets was mirrored in commodity markets. Back in September, Wall Street had been shaken by the collapse of major investment banks. Even after the US government passed a massive $700 billion aid package with the main objective of preventing credit from drying up and causing a meltdown of the US economy, markets stayed pessimistic with commodity stocks declining and oil prices hovering around $US41 a barrel. The new US President Barack Obama was inaugurated. The US government passed an $819 billion tax-and-spending bill. This was a recession-fighting effort that would extend the reach of the US Federal Government across the US economy by reshaping policy on energy, health care and social programs. For the third time since October 2008 the Bank of Canada lowered its interest rate in an attempt to stimulate the economy. Those volatile economic conditions created high levels of instability that sustained prices fluctuations in agricultural commodities. 

The Canadian Wheat Board (CWB) released its January 2008/2009 Pool Return Outlook (PRO) on January 22^nd. Milling wheat values went up $5 from the December PRO. Wheat PROs were mostly unchanged, except for a drop in some minor classes to reflect lower-priced competition for those products. Malting and feed barley values remained flat. The CWB set the initial payment for Pool B feed barley deliveries for the rest of the 2008/2009 crop year at $103.50 a metric tonnes.

In early January, corn prices continued to increase based on weaker crude oil prices and concerns about the South American drought. Corn futures fell sharply at mid-month as USDA reported higher-than-expected 2008/2009 production and ending stocks. Prices climbed back after the Argentinean government cut estimated soybean, corn and wheat areas due to drought.

Throughout January soybean futures’ prices, reached a three-month high, supported by weather problems for the South American soybean crop and by exceptionally strong export demand from China. However, soybean prices were volatile because of lower crude oil prices and rainfalls forecast in Argentina.

In early January, wheat futures’ prices peaked at their highest level since October 2008 supported by gains in corn and soybean markets and concerns about winterkill of US, Russian and Ukrainian winter wheat. However, higher world and US wheat supplies announced by USDA and lower export demand pressured wheat prices down.

Early January Winnipeg canola futures’ prices continued to increase supported by the Chicago Board of Trade (CBOT) soybean complex. However, the absence of fresh export demand and large on-farm supplies of canola in Western Canada were undermining price influences. 

The edible pea market continued to trade on an easier tone into the new year. The sluggish pricing environment was a result of slow demand from Canada’s key buyer, India. Some buying interest was expressed by Bangladesh, Sri Lanka, and Pakistan but it was not enough to offset the lack of demand from India. Indian state trading enterprises had not resold all the yellow peas imported during the fall. As a result, private Indian companies were not eager to import product for fear of having to compete with those government stocks. This scenario, combined with large Canadian pea stocks, resulted in downward pressure on yellow pea prices. Green pea prices returned to a premium over yellow peas due to a smaller supply and less substitutability.

World demand for feed peas remained limited as producers looked to feed markets to sell other grains plagued by slower than expected export paces.

Good demand for all classes of lentils buoyed international lentil markets. Canadian red lentil markets were supported by tightening world supplies and increased buying interest from the Indian subcontinent. Green lentils were supported by Latin American and Indian demand, but higher stocks offset some of this increased demand.

International chickpea markets continued to trade sideways as Indian exporters aggressively sold Kabuli chickpeas. Canadian chickpea suppliers have seen limited sales opportunities before Mexico’s harvest reaches the market. Early harvest reports indicated disappointing initial yields because of a poor growing season.

Canary seed markets continued to be plagued by slow demand into the winter season. Some interest from European Union importers has been reported but large cereal stocks prevented any bids.