January 7, 2004

 

 

Outlook 2004: Canada Wheat, Barley Seedings Down

 

Attractive cash prices for oilseed crops will result in Canadian producers reducing the amount of area seeded to both wheat and barley in spring 2004, industry sources say.

 

Canola, soybean and flaxseed area will be up partially at the expense of wheat and barley, said Glen Lennox, a wheat analyst with the market analysis branch of Agriculture and Agri-Food Canada.

 

Reports that a cow in the U.S. that tested positive for bovine spongiform encephalopathy, or mad-cow disease, had originated in Canada has wiped out any upward potential that may have been building for Winnipeg Commodity Exchange barley futures.

 

As for wheat: "We are expecting that the area to spring wheat will be down anywhere from 5% to 10% in 2004 from the 2003 level of 18.562 million acres," Lennox said.

 

He added the decline in wheat area will likely be discouraged in part by the relatively tight supply outlook.

 

"Wheat will be the crop that takes a hit unless we can get prices to rally somewhat just before Canada's producers have to make spring seeding decisions," said Charlie Pearson, an analyst with Alberta Agriculture and Food.

 

Pearson said that should prices remain at present levels, seeded area will drop next spring.

 

"There is a recognition in the industry that the Canadian Wheat Board is being conservative with its 2003-04 price outlook for wheat, especially after suffering a deficit of some C$85.4 million in its 2002-03 wheat pool account," said Mike Jubinville, an analyst with farmer advisory service ProFarmer Canada.

 

But if the CWB is being conservative, producers still might consider growing the crop in 2004 in view of likely upward adjustments to prices in the future, he said.

 

"If producers see values for the various spring wheats climb into the C$4.50-a-bushel range next spring, I think that is a level which would encourage some acreage," Jubinville said. "The first look at what kind of prices producers will get for their spring wheats from the CWB will be known in late February when it begins forecasting the 2004-05 price outlooks."

 

DURUM-SEEDED AREA SEEN STEADY

 

Attractive world prices and steady demand were seen keeping Canada's area seeded to durum steady, although an increase of 5% in 2004 from the 2003 level of 6.135 million acres was possible.

 

"Prices for durum in 2003 have been relatively good in comparison to others, and if there are concerns about dryness during the spring time, durum is a crop producers prefer to seed into poor moisture situations," Lennox said. "Durum also has the reputation of outperforming expectations year in and year out, which also may attract some producers to the crop."

 

Durum stocks are also not seen at burdensome levels, an additional encouraging factor for producers.

 

"There's been a lot of talk about producers giving serious consideration to planting the oilseeds, particularly canola, next spring. However, if we run into a poor spring run-off and if timely rains don't materialize, farmers could make a conscious decision to go (with) what is safer, which means durum and even spring wheat," he said.

 

Working against an increase in the durum area will be increased competition on the world export market, Lennox said. He pointed out that Australia will once again be a key competitor against Canada in durum and wheat. The European Union, coming off a disastrous season, is also expected to produce a larger durum crop next year. A drop in demand from North Africa is also anticipated and could work against the price outlook.

 

BARLEY AREA SEEN DOWN

 

Barley area in Canada was seen dropping 5% in 2004 from the 12.469 million acres seeded in 2003, Lennox said.

 

The drop in barley area would have been greater if it were not for a core of producers willing to spin the roulette wheel in hopes of winning big by harvesting a malt-quality crop.

 

The status of the U.S. border to Canadian live cattle also will play a role in whether producers consider putting barley into the ground, Lennox said.

 

"If the border appears that it will remain closed indefinitely, the feedlot industry in Western Canada is likely to fold in a big way, reducing the need for feed barley significantly," he said, noting that producers might shy away from producing the crop if there is no demand for it.

 

Lennox made those comments before the announcement that a cow in Washington state had been discovered to have had BSE.

 

ProFarmer Canada's Jubinville said after the U.S. BSE discovery: "If you would have asked me a week or so ago, I would have been encouraged that the outlook for this commodity had upside potential."

 

But with the discovery of BSE in the U.S., "all cards are now off the table," he said. Canadian feed barley is consumed by the cattle and hog industries.

 

The less-optimistic view on barley reflected ideas that end-users were reverting back to a hand-to-mouth buying scenario that existed about six months ago. "When the cow in Alberta was diagnosed with BSE in May 2003, these end-users did not want to take a chance and forward-cover based on the uncertainty over what this meant," Jubinville said. "With this latest development, we are right back to square one."

 

He said the trace back of the U.S. animal with BSE to Canada was not a very good development and could have the impact of extending the U.S. ban on Canadian live cattle for an indefinite period.

 

Lennox acknowledged that small barley crops in the E.U. resulted in some opportunities for the Canadian Wheat Board to make, for the first time, some feed-barley sales into that region during 2003. But he said that next year, it appears that barley output in the E.U. will be back at more normal levels.

 

Alberta Agriculture and Food's Pearson had said he felt that barley area in 2004 would likely match that of 2003. He had agreed that CWB values for 2004-05 - normally released in conjunction with the CWB's Grain World Conference in late February - would be the main determining factor.

 

Pearson said this week that he would keep the barley-acreage base stable because of the number of cattle that will still need to be fed in Western Canada as any BSE impact will not be felt for some time. Pearson also said that while Canada's bred-cow herd is a bit smaller, it will still produce a fairly large calf crop this spring, resulting in steady demand for barley as a feed at least for most of the 2004-05 crop year (August-July).