November 9, 2009

Canadian grains production for 2009-10 is forecast to dip by over 15 percent from the preceding year, due to unfavourable weather conditions throughout 2009, according to a US Department of Agriculture attache report posted Friday (November 6) on the Foreign Agricultural Services Web site.

The 2009-10 wheat (except durum) exports are forecast to fall by 9 percent to 13.5 million tonnes (MT) because of lower supply. Durum wheat exports are, however, expected to increase by roughly 7 percent to 4 MT, despite a fall in production. Barley exports for 2009-10 are expected to drop to 1.45 MT, a decrease of 2 percent from 2008-09 due to increased world barley and corn supplies as well as the stronger Canadian dollar. Imports of corn in 2009-10 are expected to return to average import levels of 2 MT, primarily the result of reduced domestic supplies. Post forecasts oat exports to fall to about 1.6 MT in 2009-10 due to a slack in demand.

 

Post estimates Canadian wheat, barley, corn, and oats production for MY (marketing year) 2009-10 to fall to approximately 46 MT, down 16 percent from the 2008-09 levels of 55.2 MT. With the exception of spring wheat in Manitoba, Canadian prairie farmers report decreases in all major grains when compared to the previous year. Weather-induced higher abandonment rates and lower yields are the main factors contributing to the decrease. Wheat (except durum) production is forecast to drop by 15 percent from 2008-09 levels to roughly 19.5 MT. This drop should cause wheat (except durum) exports to drop by around 9 percent to 13.5 MT. Barley production for 2009-10 is estimated to decrease 22 percent from 2008-09 levels to about 9.2 MT as a result of lower yields and reduced harvested area. Corn production is forecast to drop 8 percent to 9.75 MT. Oats production previously forecast at roughly 2.8 MT in 2009-10 remains largely unchanged, but nonetheless represents a steep decline of 34 percent from 2008-09 levels.

 

Agriculture Canada published its latest Grains and Oilseeds Outlook for the 2009-10 crop year on October 8, 2009, and released its most recent revision to the Cereals and Oilseeds Review on September 24, 2009. Statistics Canada also released on October 2, 2009, its September Estimate of Production of Principal Field Crops. The production estimates for the 2009-10 crop year in the October reports are based on Statistics Canada's survey of 14,000 Canadian farmers in early September 2009. Production data are preliminary and are subject to revision once final data are received from the November 2009 survey.

 

Post forecasts all wheat (includes durum) production to reach 24.35 MT in MY2009-10, down 15 percent from 28.6 MT in 2008-09. Unfavourable weather conditions led to late germination in spring 2009 only to be followed by less than then desirable growing conditions during the summer. The net effect has been to hold back crop advancement, which has required more time to bring the crop in. While seeded area for wheat (except durum) was up 3 percent compared to 2008-09, weather-induced higher crop abandonment and lower yields will likely offset increases from additional seeding. Wheat (except durum) production forecast at 19.3 MT is down from 23.1 MT in 2008-09. Durum wheat production at about 5.1 MT is down 8 percent from 2008-09. Canada anticipates that the overall drop in all wheat production will be partially offset by the large carry-in stocks (6.5 MT). However, this year's large carry-in stocks will be unable to fully compensate for weather-induced declines in production. The Canadian Wheat Board (CWB) indicates that western Canada's harvest this year has been slowed because of prolonged wintry conditions to its slowest pace in 5 years. As of October 20, an estimated 10 percent of the spring wheat and 5 percent of durum wheat still remains to be harvested. The 2009-10 wheat (except durum) exports are forecast to fall by 9 percent to 13.5 MT because of lower supply. Durum wheat exports are, however, expected to increase by roughly 7 percent to 4 MMT, despite a fall in production. Durum wheat exports are expected to benefit from lower EU production combined with large Canadian supplies resulting from higher carry-in stocks. Nevertheless any further strengthening of the Canadian dollar may ultimately impact demand from overseas.

 

Feed wheat consumption in 2009-10 is expected to increase by 3 percent to 3.2 MT, as a result of continued strong demand for lean cow trim beef for grinding and poor pasture conditions. Yet it is unclear that this growth can be sustained since earlier this year numerous Canadian livestock producers, fretting over the possibility of continued high feed costs, took advantage of a federal tax deferral program that allowed them to sell off cattle while deferring tax payments for two years. Statistics Canada reports that cattle inventories are down 2.3 percent as of July 1. As a result the feed number should be interpreted with caution as including "loss and waste" as well as feed wheat. Ending stocks in 2009-10 are forecast to fall to 5.6 MT, down from 6.5 MT in 2008-09.

 

Post forecasts barley production in MY2009-10 to fall to about 9.2 MT, a 22 percent drop from the previous crop year, and 19 percent below the 10-year average. Poor weather conditions led to significantly lower yields and harvest areas. Supply is forecast to decrease by approximately 10 percent as higher carry-in stocks partly offset the drop in production. Feed barley use will decline as livestock numbers fall. Barley exports for 2009-10 are expected to drop to 1.45 MT, a decrease of 2 percent from 2008-09 due to increased world barley and corn supplies as well as the stronger Canadian dollar. Canadian barley production is forecast to fall as a result of decreased US demand for feed barley which is being offset by higher domestic (United States) supplies of feed corn. Canadian consumption of feed barley is forecast to decrease to 7.4 MT in 2009-10 due to lower supplies, higher prices, and an anticipated decrease in overall livestock numbers as the Canadian livestock industry continues to downsize and restructure. Anticipated lower supplies will pull stocks down to well below the five-year average. Ending stocks for 2009-10 are forecast at 1.8 MT.

 

Barley exports in MY2008-09 fell short of initial expectations. Exports reached 1.5 MT, well below the 2007-08 level of 3.0 MMT. The drop in Canadian barley exports is due to lower US demand for feed barley. The combination of ample supplies and lower exports, and ensuing lower prices, led to a nearly 17.5 percent increase in Canadian domestic feed barley use of 7.7 MT. In 2008-09 domestic demand for feed barley spiked due to poor weather conditions in western Canada when livestock producers scrambled to secure feed for their herds. Livestock producers also indicate that US Country-of-Origin Labeling (COOL) requirements have slowed cross border trade, forcing greater number of cattle to remain on the Canadian side of the border, driving up domestic feed barley demand. Ending stocks surpassed 2.8 MT, close to the five-year average of 2.4 MT.

 

On the other hand, the area seeded to corn in MY2009-10 increased marginally to about 1.2 million hectares, but lower yields due to poor weather may likely decrease production by 8 percent to 9.7 MT compared to 2008-09 level of 10.6 MT. Imports of corn are expected to return to average import levels of 2 MMT, primarily the result of reduced domestic supplies. Food and industrial use, including ethanol production, along with feed, waste, and dockage, is forecast to rise slightly in 2009-10.

 

Industrial demand for corn for ethanol remains strong. Ethanol plants in Ontario will continue to drive Canadian industrial demand for corn. Industrial demand for corn is forecast to reach 4.3 MT well above the five-year average of 2.7 MT. Like feed wheat consumption, feed corn consumption will show a slight increase in 2009-10 compared to the previous year. Feed use of corn is expected to increase to almost 7.6 MT in 2009-10, slightly changed from the 2008-09 levels of 7.45 MT. It is unclear if feed corn usage will grow in the future since its utilization is linked to the health of the Canadian hog industry - herd size continues to decline. For now, high domestic supplies (and the ensuing lower prices) along with greater number of hogs being fed in Canada due to US COOL regulations continues to keep forecasted feed corn consumption numbers for 2009-10 close to the five-year average.

 

Canadian corn exports are forecast to fall as a result of greater US supplies. Ending stocks are forecast to decrease by 25 percent from the 2008-09 level of 1.8 MT to 1.4 MT. The Chatham elevator price is expected to fall pressured by lower US corn prices and the stronger Canadian dollar.

 

Corn imports in MY2008-09 at 1.7 MT were significantly lower than the 10-year average level of 2.4 MT. The drop in demand is due to the greater availability of domestic corn and barley for feed purposes and ample local supplies of corn for industrial usage. Corn imports in 2008-09 fell 46 percent compared to the 2007-08 level of 3.2 MT. While feed wheat and feed barley consumption increased in 2008-09 compared to the previous year, feed corn fell to 7.5 MT or over 2.7 MT compared to 2007-08 levels. Post forecasts that as the Canadian hog industry restructures (downsizes), its demand for feed corn will further slow. Ending stocks in 2008-09 are estimated at over 1.8 MT.

 

Post forecasts oats production to decrease by over 1.4 MT to about 2.8 MT, representing a 34 percent drop in MY2009-10 compared to 2008-09. The drop in production is attributed to a combination of lower seeded and harvested area (1.5 million hectares seeded, 1.0 million hectares harvested in 2009-10 versus 1.7 million hectares seeded and 1.4 million hectares harvested in 2008-09), lower yields, and higher rates of abandonment caused by poor growing conditions. The 2009-10 drop in production will be offset by higher carry-in stocks (1.5 MT), but supplies should still fall by about 17 percent from 5.2 MT (2008-09) to 4.3 MMT in 2009/10. Post forecasts oat exports to fall to about 1.6 MT in 2009-10 while ending stocks are anticipated to decline to 1.1 MT. A strong Canadian dollar combined with lower US coarse grain prices should contribute to drive down oats prices by roughly 20 percent through 2009-10.

 

In MY 2008-09, Canadian oats production fell 9 percent to 4.3 MT compared to the previous 2007-08 level of 4.7 MT. As a result oats exports decreased to 1.9 MT, representing a drop of nearly 18 percent from the previous year's export volume of 2.4 MT. Already abundant supplies combined with low prices resulted in a standoff between producers and buyers that suppressed exports in 2008-09. Canadian oats producers sought to restrict supplies in order to drive up prices. However, buyers were able to hold off on purchases given adequate stockpiles. Post estimates that decrease exports were responsible for the high level of ending stocks (1.5 MT) in 2008-09.