Situation report — September 2011

Stocks of main Canadian principal field crops down

Statistics Canada published stock value as at July 31^st, 2011 on September 7^th, 2011. Results show that total stocks of wheat, barley, oats and canola were down compared with the same date in 2010.

Total stocks of wheat decreased 8.2% to 7.2 million tonnes, mostly the result of an 18.8% decline in on-farm stocks. Commercial stocks were little changed.

Much of the decrease occurred for durum wheat, where total stocks fell 41.5% during the year to 1.6 million tonnes.

Total stocks of barley declined 44.2% to 1.4 million metric tonnes. Barley production fell in 2010, as a result of reduced harvested area. Declines of on-farm stocks occurred in all four western provinces, but were most pronounced in Manitoba and Saskatchewan.

Total stocks of canola decreased 19.2% to 1.8 million metric tonnes. This was primarily a result of on-farm stocks, which declined by 33.9% to 820,000 metric tonnes. Despite the decline, total canola stocks remained at the five-year average (2006 to 2010) of 1.8 million metric tonnes.

Overall stocks of oats fell 34.3% to 769,000 metric tonnes. This follows a sharp decline in oat production in 2010. On-farm stocks of oats were down 37.2% while commercial stocks fell 24.2%.

La Coop Fédérée continues its Canadian expansion

La Coop Fédérée, based in Montréal, recently purchased two Canadian enterprises specialised in the grain and fertiliser sectors: Grower Direct Exports, based in Ontario, and Agrico Canada, a company based in Manitoba and Saskatchewan.

Grower Direct Exports specialises in the grain trade.

Agrico specialises in the chemical fertiliser and phytosanitary product sector and owns three distribution centres. La Coop Fédérée will also gain access to the eleven retail enterprises belonging to Agrico.

Tighter tolerances for vomitoxin in wheat futures contract

The Chicago Board of Trade (CBOT) announced tighter tolerances for vomitoxin in its wheat futures contract. Vomitoxin develops in crops attacked by fusarium. Wheat testing four or more parts per million (ppm) vomitoxin will no longer be deliverable against futures contracts. The discount for wheat containing three ppm will rise from 12 to 20 cents per bushel, effective at the open of the September 2013 contracts.

First wheat genome

The International Wheat Genome Sequencing Consortium (IWGSC) released the first version of the wheat genome on August 26^th, 2011. This is seen as a step toward a fully analysed wheat genome map that should help wheat breeders develop varieties with a higher yield with higher drought and disease resistance. The public release of the wheat genome data should provide a foundation for identifying genetic differences between wheat varieties.

The IWGSC was established by a group of plant scientists, breeders and growers to sequence the highly complex wheat genome.

World agricultural supply and demand updated

The United States Department of Agriculture (USDA) released updated world agricultural supply and demand estimates on Monday, September 12^th, 2011.

Global wheat supplies for 2011/2012 are projected 6.8 million metric tonnes higher mostly on larger beginning stocks in Canada and increased production for Canada, EU-27, and Ukraine. Beginning stocks for Canada are raised 1.2 million metric tonnes and production is raised 2.2 million metric tonnes, both reflecting the latest estimates from Statistics Canada. EU-27 production is raised 2.1 million metric tonnes with increases for Germany, Romania, France, Spain, and Bulgaria as harvest reports and revisions to official estimates continue to indicate higher yields. Production for Ukraine is raised to 0.9 million metric tonnes based on the latest harvest reports. Other minor production revisions include 0.2-million-metric tonne increases for both Brazil and Morocco, and a 0.2-million-tonne reduction for Uzbekistan.

World wheat trade is raised slightly for 2011/2012 with increased imports projected for the United States and Uzbekistan. Global exports are also raised as higher expected shipments from Canada and EU27 more than offset reductions for the United States and Turkey. Global wheat consumption is increased 1.7 million metric tonnes with higher expected wheat feeding in Canada, China, Morocco, and Turkey more than offsetting a reduction for Russia. World wheat ending stocks for 2011/2012 are projected 5.77 million tonnes higher at 175.1 million metric tonnes. At this level, global stocks would be up from 2010/2011 and the second largest in the past decade.

Total corn supplies for 2011/2012 are lowered 442 million bushels with a 20-million-bushel reduction in carry in and a 5-million-bushel reduction in expected imports. Beginning stocks for 2011/2012 drop with small increases in 2010/11 exports and use for sweeteners reflecting the latest available data. Imports for 2011/2012 are reduced with the smaller forecast corn crop in Canada. Supplies for 2011/12 are projected to be the lowest since 2006/07.

Total corn use for 2011/2012 is projected 400 million bushels lower with tighter supplies. Projected feed and residual use is reduced 200 million bushels mostly reflecting lower expected residual disappearance with the smaller forecast crop. Corn use for ethanol is projected 100 million bushels lower with higher expected corn prices and continued weakening in the outlook for U.S. gasoline consumption as forecast by the Energy Information Administration. Corn exports for 2011/2012 are projected 100 million bushels lower with increased supplies and exports expected from Ukraine, Argentina, and Brazil. U.S. ending stocks are projected 42 million bushels lower at 672 million. The stocks-to-use ratio is projected at 5.3 percent, compared with last month’s projection of 5.4 percent. The season-average farm price is projected 30 cents per bushel higher on both ends of the range to a record $6.50 to $7.50 per bushel.

Global coarse grain supplies for 2011/2012 are projected 2.8 million metric tonnes lower with larger barley, sorghum, millet, and oats supplies only partly offsetting the reduction for corn driven by the U.S. changes. Global corn supplies are reduced 4.1 million metric tonnes as increases in foreign beginning stocks and production partly offset the reduction in U.S. supplies. Projected global corn production for 2011/2012 is lowered 5.3 million metric tonnes as a 4.3-million-metric-tonne increase in expected foreign output is outweighed by the 9.5-million-metric-tonne U.S. reduction. Brazil and Argentina production for 2011/2012 are raised 3.6 million metric tonnes and 1.4 million metric tonnes, respectively, on higher expected area with rising returns for corn in both countries. Ukraine corn production is raised 1.4 million metric tonnes based on indications for higher yields. Production is raised 0.9 million metric tonnes for EU-27 with higher expected yields in France and several countries in Eastern Europe. Production is lowered 0.9 million metric tonnes for Canada based on the latest Statistics Canada estimates. Production is also lowered 1.9 million metric tonnes for Egypt as lack of government restrictions on planting resulted in a sharp shift in acreage away from corn and into rice.

Global coarse grain trade for 2011/2012 is raised slightly with increased foreign trade in barley and corn more than offsetting the reduction in U.S. corn shipments. Barley imports are raised for Saudi Arabia and Syria with larger shipments expected from Ukraine and Russia. Corn exports are raised for Ukraine, Argentina, Brazil, and EU-27. Corn exports are lowered for Canada and Paraguay. Global corn consumption for 2011/2012 is lowered 6.6 million metric tonnes, mostly reflecting lower expected use in the United States. Foreign corn feeding and consumption are nearly unchanged. World corn ending stocks are projected up 2.6 million metric tonnes with increases in South America, Ukraine, and EU-27 more than offsetting the reduction projected for the United States.

Global oilseed production for 2011/2012 is projected at 407.7 million metric tonnes, up 1.4 million metric tonnes from last month. Production increases for soybeans, rapeseed, sunflower seed, and cottonseed are only partly offset by lower peanut production. Soybean production is projected higher for the United States and India. India’s soybean production is raised 0.6 million tonnes to a record 9.5 million due to higher planted area. Canola production for Canada is increased 0.5 million tonnes to a record 11.9 million based on higher area and yield reported in the most recent report from Statistics Canada. Harvested area is projected record high despite excessive rainfall and flooding in parts of Saskatchewan and Manitoba that prevented some area from being planted. Canada’s canola production is also raised for both the 2009 and 2010 crops based on the same report. Other changes include higher sunflower seed production for EU-27, higher cottonseed production for China, lower cottonseed production for Pakistan, and lower peanut production for India.

United States crop production updated

The United States Department of Agriculture (USDA) also released an update on crop production Monday, September 12^th, 2011.

Corn production is forecast at 12.5 billion bushels, down 3% from the August forecast but up fractionally from 2010. If realized, this will be the third largest production total on record for the United States. Based on conditions as of September 1^st, yields are expected to average 148.1 bushels per acre, down 4.9 bushels from the August 1 forecast and down 4.7 bushels from 2010. If realized, this will be the lowest average yield in the United States since 2005.

Soybean production is forecast at 3.09 billion bushels, up 1% from August but down 7% from last year. Based on September 1^st conditions, yields are expected to average 41.8 bushels per acre, up 0.4 from last month but down 1.7 bushels from last year. Compared with last month, yield forecasts are higher in the Central Great Plains and along much of the Atlantic Coast. If realized, the forecasted yield in Nebraska will be a record high. Yield forecasts are below last month across the Southern Great Plains and portions of the Southeast as hot, dry conditions persisted during August. Area for harvest in the United States is forecast at 73.8 million acres, unchanged from August but down 4% from the same month in 2010.

Prices

The Canadian Wheat Board (CWB) released its updated Pool Return Outlook (PRO) for the 2011/2012 crop year on September 22^nd, 2011.

Changes in wheat values since last month's PRO are varied, ranging from an increase of $5 per metric tonne to a decrease of $7 per metric tonne, depending on class, grade and protein level. Milling durum values have declined between $2 and $11 per metric tonne since August 2011. Malting barley has increased by $2 per metric tonne and feed barley values are unchanged.

Wheat futures have dropped on U.S. grain exchanges since the last PRO, with Minneapolis futures off by about 80 cents per bushel and Chicago futures down by more than a dollar. Basis levels have also been under pressure as the market becomes more confident of sufficient supplies of new-crop quality, protein and volume to satisfy demand. The improved western Canadian quality profile, on the heels of a higher protein harvest on the U.S. Northern Plains, is contributing to the weaker Minneapolis futures and declining premiums for both protein and quality attributes. The overall wheat market has also fallen due to continued positive production and yields in the European Union (EU) and Black Sea region--including Russia, Ukraine and Kazakhstan. As stated by the U.S. Department of Agriculture (USDA), world production is estimated at 679 million tonnes, with ending stocks at 194.6 million metric tonnes. These are significant numbers that will continue to temper the market throughout the 2011/2012 marketing year.

Durum prices have been more resilient than wheat prices during the past month, but have also moved lower. The U.S. crop is estimated at 58 million bushels, but the USDA cut back on exports and usage to increase its ending-stocks estimate to 28 million bushels--roughly double the total of the August estimate. North American prices remain strong and provide strong incentive for durum planting intentions. Canadian durum prospects are favourable, with expectations of a four-million metric tonne crop with a much improved year-on-year quality profile. Although the Canadian dollar remains under pressure, it has not depreciated to the same degree as the euro. While demand remains strong in the Mediterranean basin for durum, the weaker euro has had the dual effect of increased EU competiveness and decreased buying power for North American durum.

Feed barley values have remained strong over the last month, although the market has been relatively quiet. Feed barley spreads have remained tight between Black Sea FOB values and other origins, helping support the overall price structure. Even with corn futures decreasing throughout September, feed barley remains a cheaper alternative in many regions. This price differential is expected to continue throughout 2011/2012 based on tight U.S. corn supplies, which will increase barley feeding globally. Even in the U.S., where corn is king, feeders will be looking to substitute grains when corn becomes too pricey or difficult to source. Barley feeding is expected to remain very strong in Europe and the Black Sea region where cattle, hog and poultry production is more flexible in terms of feed substitution.

Good harvest weather throughout September has helped ensure the quality of this year's malting barley crop in Canada. Demand for new-crop supplies is expected to be strong, especially in the U.S., where malting barley production was limited due to a poor growing season on the Northern Plains. Internationally, some demand will be deflected to Canada from Europe, where malting barley quality was less than ideal due to rains at harvest in Germany and Denmark. Demand from China will be strong again this year. However, a large import program throughout the last quarter will allow China the opportunity to defer some purchases into the period of Southern Hemisphere harvest. Malting barley values are forecast to remain strong until the harvest in Australia and Argentina begins in December. With large barley crops in the Southern Hemisphere, even average malting barley selection rates in both countries would provide a significant increase in malting barley supplies over last year. As with the wheat and durum PROs this month, the decrease in the value of the Canadian dollar is also supportive of projections for barley returns.

Future contracts for the major grains and oilseeds look brighter than they were a year ago. This can be explained by expectations that grain and oilseed supplies will probably not meet demand before the next harvest. In the short-term, however, future contracts are decreasing compared to the previous month. This situation can be explained by the drop-off in speculative buying, speculative liquidation and the general mood in the financial markets of the world.