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USDA GAIN: Oilseeds, Cotton, Sugar, Grain and Feed


10 April 2013

USDA GAIN: Canada Grain and Feed Annual 2013USDA GAIN: Canada Grain and Feed Annual 2013

The Canadian grain market has undergone major changes since August 2012, but for the most part planting intentions will continue to be guided as they always have – by weather, economics and planting rotations. Although still very early, excess moisture is a possibility in parts of Saskatchewan and Manitoba. Total production of wheat, barley, oats and corn is forecast to be 52 MMT, an increase of 2% over the previous year’s total of 51 MMT.
USDA GAIN Report - Oilseeds, Cotton, Sugar, Grain and Feed

Production Outlook (General):

The Canadian grain market has undergone major changes since August 2012, but for the most part planting intentions will continue to be guided as they always have – by weather, economics and planting rotations. Up until August 2012, the Canadian Wheat Board (CWB) had been the world’s biggest single wheat exporter. Now that the CWB’s monopoly is gone, farmers are free to chose who they sell to. Buyers and sellers are moving forward cautiously and will use their experiences in marketing years (MY) 2012/2013 and 2013/2014 to determine how their actions impact their business. For example, buyers such as Japan’s Ministry of Agriculture, Forestry and Fisheries, are hedging their bets and splitting purchases between the CWB and other grain traders. Likewise, farmers too are splitting sales. We anticipate that in MY 2014/2015 market players will be trending towards the sources that have worked best for their businesses. World market supply and demand conditions will have an important influence on wheat pricing.

While changes to the market have resulted in a business as usual environment in many respects, the open market may have somewhat of an influence on planting decisions for the 20 13 crop year. First, the option to grow a mixture of higher yielding, mid-protein varieties rather than high-protein wheat, could influence wheat’s competitiveness with other rotation crops, and at a time when Canada’s “Cinderella” crop, canola, is experiencing slow growth in yields due to intense cultivation. High-yielding, mid-protein varieties of wheat may be seen as an attractive rotation crop.

Although not an influence on planting decisions in the coming crop year, in two or more years we could expect to see planting decisions being increasingly influenced by the needs of value - added industry. There is some expectation by industry sources that with the CWB no longer acting as sole marketer of Western Canadian wheat and barley, more processing will take place in Canada. The speculation is that companies were hesitant to invest due to the fact that there was essentially one supplier of durum wheat. The announcement of the construction of a pasta and pulse processing plant in Regina, Saskatchewan has been held up as an example of the type of processing investment that will take place now that the CWB is no longer the sole marketer. Other industry sources, however, state that the value - added processing capacity in Canada is currently underutilized and that the true determining factors of whether or not investments in processing of wheat products will be made in Canada or elsewhere will be the transportation costs of getting these products to their markets.

Although still very early, excess moisture is again a possibility in parts of Saskatchewan and Manitoba. These are the same areas that were previously flooded in 2011. For the period November 2012 to March 2013, precipitation is 150% to 200% of normal in south - central and south - eastern Saskatchewan, and 115 % to 150% of normal along Manitoba’s western border. Saskatchewan and Manitoba water officials are predicting above average runoff conditions and very high runoff in some agricultural areas, but state that these areas have less flooding potential than they did in MY 2011/2012. The MY 2011/2012 floods featured the highest water levels and flows in modern history across parts of Manitoba and Saskatchewan. Despite area harvested being 10% below the five - year average, strong yields pulled production nearly 2% a bove the five - year production levels to 25,288 TMT. Because it is still too early to determine an outcome, the outlook contained in this report is based on “normal” conditions. The rate at which snow melts and the level of precipitation to come will determ ine the risk of spring flooding. Weather, economics and crop rotations will be the deciding factors for Canadian farmers this spring.

All Wheat:

Production:

In MY 2013/2014, area seeded to all wheat is forecast to increase 2% from the previous period due to a combination of several factors, including wheat’s strong prices, relative ease of marketability and potential as a rotation crop for canola (which is experiencing decreased yields due to intense cultivation). The majority of the forecasted loss in canola acres in Canada is expected to go to wheat, with some competition from soybeans. Production of wheat is expected to increase more than 2% to 28 MMT due to increased area seeded and slightly higher yields.

Area seeded to winter wheat is up 5% over t he five - year average (2008 - 2012) and 1% over MY 2012/2013, due primarily to increases in acreage in Ontario (+25%) and Manitoba (+3%). Area seeded to winter wheat decreased 33% in Saskatchewan due to dry planting conditions. Of course, weather in the month of April will determine what actual acreage figures look like.

Consumption:

In MY 2012/2013, domestic consumption of all wheat is forecast to be 9.6 MMT, down slightly from the previous period due to decreased use of wheat feed, but still 22% above the five - year average (MY2007/2008 to 2011/2012). Growth in food, seed and industrial (FSI) consumption tends to be small but positive from year to year. It is forecast to grow 1% from the previous period to 5.2 MMT after experiencing above - average growth of 5 % in MY 2011/2012.

In MY 2013/2014, wheat feed is expected to increase marginally from the previous period, edging total domestic consumption levels back up. Growth in FSI consumption is forecast to remain flat to small.

Trade:

n MY 2012/2013, exports o f all wheat grain, flour, uncooked pasta and couscous are forecast to grow 8% over the previous period to 18.8 MMT. This is 7% above the five - year average and 15% above the ten - year average. Exports began MY 2012/2013 stong. During the period from August t o January of MY 2012/2013, they were 9,752 MT. This is 15% above the same period in MY 2011/2012 and 17% above the same period in MY 2010/2011. The spike in exports is due to a good harvest, diminished output in regions like Australia, and strong demand from the United States following the country’s drought in agricultural areas.

In MY 2013/2014, the pace of exports is forecast to slow to 1% growth, with volumes increasing to 19 MMT due to expected strong global wheat grain supplies.

Imports of all wheat grain, flour, uncooked pasta and couscous in MY 2012/2013, is forecasted at 490 TMT, similar to the previous period, as reflected in the import levels thus far in the marketing year. During the period from August to January of MY 2012/2013, imports were le ss than a percent above levels of the same period in MY 2011/2012. Import levels in TY 2012/2013 for the period July to January are 5% above the same period of TY 2011/2012. The trade year for wheat and wheat products is July - June.

No growth in imports is expected in MY 2013/2014, due to sufficient domestic supply.

Although the Canadian Government eliminated the CWB's function as the sole buyer and marketer of wheat, durum and barley produced in Western Canada, there are still varietal registration requirements. These requirements, administered by the Canadian Food Inspection Agency (CFIA) under the Seeds Act and Regulations, tied to the Canadian grading system operated by the Canadian Grain Commission (GCC) under the Canada Grains Act, impact the free flow of imports.

Stocks:

Stocks of all wheat in MY 2012/2013 are forecast to be driven down 12% from the previous period to 5.2 MMT. In MY 2013/2013, stocks are forecast to fall another 4% from the previous period. These forecasted decreases are largely due to the expectation that increased total supply will not offset increased exports.

Durum

Production:

On average, area seed ed to durum represents about 20% of the total area seeded to wheat in Canada. Durum area decreased significantly in MY 2010/2011 and MY 2011/2012 due to wet spring conditions and rebounded somewhat in MY 2012/2013 with an increase of 18% from the previous period to 1,878 thousand hectares (tHA). Area harvested remains below the ten - year average of 1,987 tHA (using periods 2002 to 2011).

In MY 2013/2014, Post forecasts area seeded to durum will increase less than a percent above the MY 2012/2013 level of 1 ,894 tHA. Production is forecast to increase nearly 4% to 4.8 MMT due to increased area seeded and yields of about the same as the previous period.

Growth in durum is expected to be dampened by the profitability of alternative crops, and due to lack of a dequate price signals.

In 2012, Intercontinental Exchange (ICE) Future Canada in Winnipeg launched futures contracts for durum (as well as milling wheat and barley), to help farmers gain greater transparency on market prices and manage their trading risks . However, the durum futures market has not been very active, and there is a lack of price signals in the market.

Consumption:

Domestic consumption of durum in MY 2013/2014 is forecast to increase marginally to 725 TMT as it is expected that an increase in food, seed and industrial consumption will offset a slight decrease in durum use in feed. Durum for feed is anticipated to move in line with more average levels as there is less supply of feed grade durum.

Trade:

In MY 2012/2013, exports are forecast to increase 15% to 4.1 MMT. Canada remains the largest exporter of durum in the world. In MY 2013/2014, exports are expected to fall 5% to due to improved world supply.

Durum imports in MY 2012/2013 are expected to increase due to lower beginning stocks and increased domestic consumption. In MY 2013/2014, imports are forecast to increase marginally.

Stocks:

In MY 2012/2013, ending stocks of durum are forecast to decrease by 14% from the previous period to 1.3 MMT due to increased total supplies not offsetti ng increased exports.

In MY 2013/2014, ending stocks of durum are forecast to be about the same as the previous period, largely maintained by decreased exports and reduced supplies.

Corn

Production:

In MY 2012/2013, corn production rose to 13 MMT , 15% above the previous year’s levels. In MY 2013/2014, corn production is forecast to decrease slightly on a return to trend yields and due to only slightly less area harvested. Still, production is forecast to be 15% above the five - year average (2007 - 20 11).

In MY 2012/2013, corn yields varied greatly across the Canada’s major growing provinces of Ontario and Quebec, but on average yields in these provinces were 2% and 7% above their five - year averages, respectively. In MY 2013/2014, Post forecasts lower yields in Quebec, and somewhat lower in Ontario, closer in line with trend yields.

Assuming normal conditions, Post forecasts that area harvested will remain high at 13% above the five - year average to reach 1.4 million hectares (Mha). The MY 2013/2014 fo recast assumes that growth in area seeded to corn will be down marginally from the previous period in Quebec, nearly flat in Ontario and up by 9% in Manitoba.

Manitoba is not seeing the sharp rise in corn production that North and South Dakota have been experiencing. The forecasted 9% increase in harvested area in Manitoba, at a yield of 6.6 MT/hectare (typical in that province) would provide an extra 28,500 tons of corn for a total of 847 TMT, or 7% of the forecasted level of national production.

While the prairie provinces may not be major players today (in MY 2012/2013, they seeded a total of 121,400 hectares), there are several factors that may nurture the growth of corn production in these provinces in the years to come. First, the environment in th e prairies has become more hospitable to corn because of the longer, warmer growing seasons in recent years. Second, strong demand for corn has prairie farmers trying to cash in on high corn prices. Further, new corn hybrids are being developed by companies like DuPont Pioneer who are developing hybrids for Prairie Provinces conditions.

Consumption:

In MY 2012/2013, domestic consumption of corn is forecast to be 2% above the previous period, in line with the ten - year average. Feed use and corn for industr ial, food and seed purposes has lift from the previous year’s level as a result of increased supplies.

In MY 2013/2014, domestic consumption is expected to rise 5% from MY 2012/2013 levels as supplies remain high.

Trade:

The pace of exports is expected to slow but levels will remain high and are expected to reach 1.4 MMT in MY 2012/2013. Post forecasts that Ontario will export 1 MMT of corn and Quebec will export 0.3 MMT. Exports of corn from September to January of MY 2012/ 2013 are 220% above the same period in the previous marketing year due to drought conditions in the United States.

In MY 2013/2014, Canadian corn exports are expected to fall 87% from the previous period due to an expectation of improved U.S. supply, which would bring the level in line with the five - year average.

In MY 2012/2013, imports are forecast to be about 600 TMT, and to remain the same in the next period due to high carry - in stocks that will offset lower production.

Stocks:

A 15% increase in production in MY 2012/2013 resul ted in increase supplies that are forecast to lift ending stocks by 27% to 1.7 MMT despite a spike in exports. In MY 2013/2014, supply is expected to remain at a high level, and exports are expected to fall, driving stocks higher.

Barley

Production:

Area seeded to barley in MY 2012/2013 was 2,751 THA This is 1 5% above the previous period but still demonstrative of a longer term downward trend. Area harvested was 17% below the ten - year average of 3,303 TMT.

In MY 2013/2014, Post is forecasting flat and small positive growth in area seeded in Saskatchewan and Al berta, respectively, and 2% growth nationally. Area harvested is forecast to be 15% below the ten - year average of 3,303 TMT.

A forecasted increase in barley production of 11% from MY 2012/2013 is supported by the expected increase in area seeded and impr oved yields.

Alternative crops have put a squeeze on area seeded to barley, and this will continue in the period to come. One downward risk to this forecast is the possibility that farmers will be further lured away by strong soybean prices, and the fact that wheat is considered easier to market than barley. The upward risks to this forecast include weakening wheat prices and a corresponding return to barley, one of the higher returning crops in the rotation. Secondly, as with the rest of this outlook, a l ot depends on the weather. If spring is slow to come, we can expect greater movement to cereals.

Harvest quality reports on Western Canadian malting barley are available from the Canada Grain Commission: http://www.grainscanada.gc.ca/barley-orge/hqbm-mqro-eng.htm

ICE Future Canada in Winnipeg launched futures contracts for barley, to help farmers gain greater transparency on market prices and manage their trading risks, but the barley futures market has not been very active, and there is a lack of price signals in the market. Better marketing information is needed.

Recently, a new marketing body, The Barley Council of Canada (BCC), was established to represent the barley indust ry. The Barley Council has five main priorities in its mandate: innovation and variety research, promoting crop production best practices, market development (malt, feed, food and industrial uses), improving market access, and improving understanding of th e industry (with the value chain and government stakeholders). An article about the BCC was published on the web site of The Western Barley Growers Association and is available at the following URL: http://www.wbga.org/barley_council.pdf

Domestic Consumption:

Total domestic consumption for barley in MY 2012/2013 is expected to decrease less than a percent from the previous period at 6.9 MMT due to a small decrease of barley in feed.

In MY 2013/2014, total domestic consumption is forecast to increase by less than 2% from the previous period. This increase is mainly driven by an increase of barley in feed due to an increase in supplies.

Barley for food, seed and industrial purposes is expected to remain relatively flat from MY 2011/2012 through to MY 2013/2014.

Trade:

Barley exports are forecast to increase by 8% in MY 2012/2013, and settle again near MY 2011/2012 levels in the following marketing year due to recovering world supplies. Canada, along with Australia, will continue to dominate the export market in China (malt) and Japan (feed).

Limited by supplies combined with a strong domestic demand, imports of barley in MY 2012/2013 are expected to increase 56% but remain low compared to historic averages at 25 TMT. This is 35% below the five - year average and 61% below the ten - year average. In MY 2013/2014, imports are forecast to increase another 32% over the previous period due again to low supplies combined with strong domestic demand.

Stocks:

Barley stocks in MY 2012/2013 are expected to decrease 21% from the previous period to 984 TMT. This decrease is a result of an increase in exports that was not offset by increases in production.

Barley stocks are expected to be pulled up in MY 2013/2014 due to an expected increase in production and decrease in exports.

Oats

Production:

Oats production continued its steady decline in MY 2012/2013 at 2.7 MMT, a level 15% below the previous period.

In MY 2013/2014, production is forecast to fall another 11% to 2.4 MMT, which would be nearly an all - time low in recorded history. This decrease is due to an expected decline of 12% in area harvested. The downward spiral of oats is due to its unpopularity in feed, and the replacement of oats for more profitable alternative crops such as oilseeds and wheat.

Consumption

Total domestic consumption of oats in MY 2012/2013 is expected to fall to 1,291 TMT, 6% below levels of the previous period, due primarily to a 10% decrease in domestic consumption of oats for feed, but also to a 2% decrease in oats for food, seed and industrial consumption. Total domestic consumption is expected to be 22% below the five - year average of 1,655 TMT.

Total domestic consumption of oats in MY 2013/2014 is forecast to fall 7.8% from the previous period to 1,190 TMT. This decrease is expected to come from a 30% decrease in feed an d a 9% decrease in oats for food, seed and industrial consumption.

Trade:

In MY 2012/2013, oat exports are expected to decrease 2% to 1.7 MMT due to lower supply and downward pressure on U.S. demand. In MY 2013/2014, exports are forecast to fall another 13% from the previous period due to a continuation of the trends cited, taking them further below the five - year average of 1,794 TMT.

Oat imports in MY 2012/2013 are expected to increase 31% to 17 TMT due to decreased total supplies that were not offset by the decrease in domestic consumption. Imports are forecast to increase 29% to 22 TMT in MY 2013/2014. This would bring imports above the five - year average of 17.2 TMT.

Stocks:

In MY 2012/2013, decreased domestic consumption and exports are not expected to offset lower production, both in MY 2012/2013 and MY 2013/2014. In MY 2012/2013, ending stocks are forecast to fall 54% to 522 TMT, well below the five - year average of 1,043 TMT. In MY 2013/2014, ending stocks are expected to fall another 34% from the previous period to 344 TMT.

Pulse Crops

Production:

In MY 2013/2014, Canadian production of pulses (lentils, dry peas and dry beans) is forecast to decrease nearly 4% from MY 2012/2013 levels. The forecasted 17% decrease in lentil production and 38% decrease in dry bean production is expected to more than offset an expected 6% increase in dry pea production. Increased production in peas are being driven by higher returns expected relative to alternative crops.

Trade:

In MY 2013/2014, exports of dry peas are forecast to increase 5% from the previous period in response to higher supplies resulting from increased production. Exports of lentils are forecast to decrease marginally. Exports of dry beans are forecast to fall - 13% due to the expected decrease in production and total supply.

Exports of dry beans and dry peas are expected to increase in MY 2012/2013 from the previous period. Increased total supply and strong demand from the EU and U nited States (in the case of dry beans) is pulling up exports. Exports of lentils in MY 2012/2013 are expected to rise marginally.

April 2013

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