2006-01-20 | Volume 19 Number 1 | ISSN 1494-1805 | AAFC No. 2081/E

Canadian Outlook for Grains, Oilseeds, Pulses and Special Crops in 2006-2007

Production of grains, oilseeds, pulses and special crops in Canada is forecast to decrease to 70 million tonnes (Mt) in 2006, from 72 Mt in 2005, largely due to lower yields. Total exports are projected to increase, while carry-out stocks are expected to decline. World wheat and oilseed prices are expected to decrease in 2006-2007 due to increased supplies in the major producing countries. World coarse grain prices are expected to increase slightly, mainly due to lower corn production in the United States (US). Canadian prices will continue to be pressured by the strong Canadian dollar. The market outlook is tentative due to the high degree of uncertainty regarding global supply and demand conditions. Normal weather patterns have been assumed. Unusual weather conditions in any of the major importing or exporting countries could significantly alter the outlook. Trade policy factors, such as the anti-dumping and countervail duties currently in place on grain corn imports from the US, will also affect the outlook for 2006-2007.

Canadian Production Outlook

Area seeded for 2006 will be influenced by expected net returns, current prices, expected delivery opportunities, crop rotation requirements, potential disease and pest problems, and on-farm stocks. The following forecasts are not based on a survey of farmers. The first survey of farmers' 2006 seeding intentions will be released by Statistics Canada on April 25, 2006.

Expected net returns by province were calculated using projected 2006 input costs, trend yields and current prices, to provide potential returns net of operating expenses for the major crops, as viewed by a farmer making planting decisions in early 2006. These projections indicate that, of the major western Canadian crops, non-durum wheat and oats generally have the highest potential net returns. Expected feed barley returns are not attractive, but much of this crop is grown for on-farm feeding, and malting barley returns are expected to be good, supporting barley area. Oat area is supported by good potential returns in Manitoba and Saskatchewan. High expected net returns for sunflower seed and chickpeas are projected to result in a shift into these crops. In eastern Canada, expectations of stronger corn prices resulting from the recently announced provisional anti-dumping and countervailing duties (AD/CVD) on imports of US corn offset the impact of higher input costs, and corn area is expected to be relatively unchanged.

Canola and durum wheat supplies have reached burdensome levels, with durum deliveries restricted by Canadian Wheat Board (CWB) delivery contracts. These factors increase the incentive to reduce the area of these crops and increase the area of alternative crops such as non-durum wheat, oats and barley.

Agriculture and Agri-Food Canada (AAFC) forecasts that the areas seeded to non-durum wheat, oats, barley, corn, dry peas, sunflower seed, chickpeas and buckwheat will increase in 2006, but decrease for durum wheat, flaxseed, canola, soybeans, dry beans, lentils, mustard seed and canary seed. Summerfallow area is expected to decrease, but much of this will be due to the seeding of areas in Manitoba that were not seeded in 2005 due to excess moisture.

Normal abandonment rates and trend yields have been assumed for 2006. In general, yields in western Canada are expected to be well below the 2005 yields, which were well above normal due to near-ideal growing conditions in most regions, with ample moisture and no extreme heat. Grain and oilseed production in western Canada is forecast to decline by 3% from 2005, to 49 Mt, with pulse and special crop production expected to be down by 8% to 4.7 Mt. In eastern Canada, production is projected to decrease by 4% to 15 Mt for grains and oilseeds, and by 11% to 0.2 Mt for pulses and special crops.

Wheat

World

World wheat production is expected to increase slightly in 2006-2007, to 621 Mt. Carry-out stocks are projected to increase only slightly, but major exporter stocks ¹ ( ¹ United States, European Union (EU-25), Canada, Australia and Argentina) are forecast to rise by 15%, to about 60 Mt, the highest in 15 years. Of particular importance is the US wheat supply and disposition outlook, as the major commodity futures markets are located in the US. US production is expected to increase by 5% to 2.2 billion bushels, with carry-out stocks forecast to rise significantly. The stock-to-use ratio is forecast at 32%, versus 24% in 2005-2006, the highest in 5 years. As a result, the average US farm price is expected to fall by 10%, to US$3.00 per bushel (/bu).

World Price Outlook

World non-durum wheat prices are expected to decline in 2006-2007, as a result of the rising exporter stocks. The US Hard Winter Ordinary (HWO) wheat price, FOB Gulf, is forecast to decline to US$130-140 per tonne (/t) for 2006-2007 (August-July), compared to US$155-165 /t in 2005-2006 and US$155 /t in 2004-2005. Protein premiums are expected to decline, assuming normal protein levels in the US and Canadian spring wheat crops for 2006.

World durum prices are expected to decline slightly, but the premium to spring wheat is expected to increase due to lower supplies in the major exporting countries. However, these supplies are forecast at over 20 Mt, more than 1 Mt above the 10-year average, making a major price rally unlikely in the durum market. The US No.3 Hard Amber Durum (HAD) price, FOB Gulf, is forecast at US$170-180 /t, slightly lower than 2005-2006.

Canada

Non-durum Wheat: Higher Production and Lower Prices

Non-durum wheat seeded area is forecast to increase by 12% in 2006. Production is projected to rise by 6%, with total supply rising by 4% to 27.4 Mt. Domestic feed use is projected to increase slightly, mainly due to increased feeding of soft red winter (SRW) wheat in Ontario. Exports are forecast to increase by almost 10%, assuming that the supply of good quality Canada Western Red Spring (CWRS) wheat increases. Carry-out stocks are projected to decline by more than 10%. CWB pool returns for non-durum wheat are forecast by AAFC to decline due to the lower world prices and the continued appreciation of the Canadian dollar. Returns for No.1 CWRS wheat with 11.5% protein are projected at $170 /t in-store Vancouver or St. Lawrence (I/S VC/SL), 11% below 2005-2006.

Durum Wheat: Lower Production and Slightly Lower Prices

Durum area is projected to decline by 9%, as a result of extremely high carry-in stocks, lower pool returns and poor delivery opportunities in 2005-2006. Production is forecast to fall by over 20%, but this will be largely offset by higher carry-in stocks, and total supply is projected to decline by only 3%, remaining the second highest on record. Exports are projected to decline slightly, due to lower world import demand and increased competition from other exporters. Carry-out stocks are forecast to remain unchanged at a record 3.5 Mt. Durum pool returns are forecast to decline only slightly, with No.1 CWAD 11.5% at $180 /t, $2 /t lower than in 2005-2006. The projected premium over No.1 CWRS 11.5% is $10 /t, versus a discount of $8 /t in 2005-2006.

Ontario winter wheat seeded area has increased by almost 30%, to 0.45 million hectares, due to relatively strong wheat prices and an early soybean harvest. Production is forecast to rise by 30%, to a near-record 2.0 Mt. Feed use, particularly of SRW wheat, is expected to rise sharply due to large supplies and strong domestic feed prices in Ontario resulting from the corn AD/CVD. Exports are expected to be relatively unchanged at about 0.8 Mt.

Coarse Grains

World

World coarse grain production is forecast to increase slightly from 2005-2006, to 960 Mt. Lower US corn production is expected to be more than offset by higher coarse grain production in the EU-25, the Black Sea region and South Africa. World supply, however, is expected to decline marginally, due to lower carry-in stocks. Carry-out stocks are projected to decrease by 13% to 135 Mt. World trade is forecast to increase slightly to 102 Mt.

US corn production is forecast to decrease by 5% to 267 Mt. Area seeded is expected to decrease because of large carry-in stocks and high input costs. The lower US supply is expected to more than offset higher supplies in the EU and South Africa, supporting world corn prices. The average US farm price for corn is forecast by AAFC to increase to US$2.05 /bu from US$1.80 /bu for 2005-2006.

World barley production is forecast to increase by 7% to 145 Mt, rising for all major exporters except Australia. Total supply is expected to increase only slightly due to lower carry-in stocks. World barley trade is forecast to increase by 3% to 17.5 Mt. World carry-out stocks are expected to increase by 4%. As a result, world prices are projected to decrease slightly for feed barley and be similar to 2005-2006 for malting barley.

Canada

Barley: Higher Production and Higher Prices

Area seeded to barley is forecast to increase by 8% from 2005-2006, with production rising by 3% to 12.9 Mt. Total supply, however, is expected to decrease marginally, as a result of lower carry-in stocks. Domestic feed consumption is projected to increase by 8%, due to larger inventories of, and higher prices for, cattle and hogs. Feed barley shipments from western to eastern Canada are forecast to increase, as a result of lower eastern corn imports from the US associated with the AD/CVD on unprocessed US corn. Assuming normal crop quality, malting barley exports are expected to increase to over 1.0 Mt. Feed barley exports, however, are forecast to decrease, as deliveries to the CWB are expected to become less attractive than the off-Board market. Carry-out stocks are expected to decline by over 25% to 2.2 Mt. Domestic feed barley prices are forecast to increase by about 10%, to $125 /t for 1 CW, in-store Lethbridge, while export prices decline slightly. The CWB pool returns for malting barley are projected to decrease for Six-Row varieties but remain unchanged for Two-Row varieties.

Corn: Lower Production and Higher Prices

Forecasts are very tentative, depending on the final countervail and anti-dumping decision from the Canada Border Services Agency (CBSA), expected March 15, 2006, and the final injury decision of the Canadian International Trade Tribunal, expected on April 18, 2006. If final AD/CVD duties are imposed at levels similar to the provisional duties announced December 15, 2005 by the CBSA, they are expected to support domestic prices. Despite the expected increase in input costs, corn area would be forecast to increase by 4% from 2005-2006. Production would be projected to decrease to 9.0 Mt, due mainly to lower yields, and total domestic supply is expected to decrease by 9%. Higher corn prices would be expected to decrease feed use significantly as feed grains from western Canada are substituted for corn and exports of lighter animals increase. Despite lower domestic production, corn imports would be expected to decrease significantly because of the lower than anticipated feed use and ethanol production partly related to the duty on grain corn imports from the US. If final duties are imposed at levels similar to the CBSA provisional duties, the average price of corn, Chatham elevator, would be forecast to increase from $110 /t for 2005-2006 to $115-135 /t for 2006-2007.

Oats: Higher Production and Lower Prices

The area seeded to oats is forecast to increase by 15% from 2005-2006, as a result of higher prices and lower production costs relative to other crops. Production is projected to increase by 18% to 4.0 Mt. Total supply is expected to increase by 11%, as higher production more than offsets lower carry-in stocks. While domestic food use is expected to remain steady, feed use is projected to increase. Despite stronger competition from the EU, Canadian exports, mainly to the US, are forecast to increase by 6% to 1.7 Mt, due to increased supplies of milling quality oats. The average nearby Chicago Board of Trade oat price is forecast to decrease to CAN$125 /t, from CAN$135 /t for 2005-2006.

Oilseeds

World

World production of the eight major oilseeds is forecast to decrease slightly, to 380 Mt, for 2006-2007. World oilseed supplies are forecast to remain stable at record highs, as the drop in output is mostly offset by a 9% rise in carry-out stocks. World oilseed use is forecast at a record 386 Mt, supported by increased vegoil and protein meal consumption in China and India. In the EU-25 and the US the consumption of veg-oil for bio-diesel production is forecast to continue rising on support from strong crude oil prices. Trade is projected to rise to 83 Mt as the oilseed industry continues to expand in emerging economy countries while carry-out stocks are forecast to decline slightly from the record highs set in 2005-2006.

World soybean production is forecast to decrease slightly, to 217 Mt, from the record 222 Mt grown in 2005-2006. Production in the US is projected to decline slightly because of lower yields while South American planted area falls under pressure from low prices, higher input costs and credit constraints.

World soybean usage is forecast to rise to a record 218 Mt on support from increased Chinese, South American and US crush. Strong growth in soyoil usage in China, the US and in the Middle East is expected. However, the growth in world soymeal usage, supported over the past several years by increased meat consumption in Asia, is being tempered by the widespread outbreaks of HN51 Avian Influenza in Asian poultry flocks. Concerns over the possible spread of an epidemic into other regions has increased uncertainty and pressured prices in the protein meal market.

US Soybean Prices Decrease Slightly

The US farm price of soybeans is projected to decline to US$5.00 /bu, from US$5.35 /bu for 2005-2006, under pressure from burdensome carry-out stocks which are near 20 year highs. Soyoil prices are expected to fall by 10% to US$0.21 per pound for 2006-2007, under pressure from high oil yields and burdensome carry-in stocks. Similarly, soymeal prices are projected to decrease slightly to US$165 per short ton under pressure from high supplies and constrained exports for 2006-2007.

Canada

Canola: Lower Production and Lower Prices

The area seeded to canola is forecast to decline by 12% because of low prices and burdensome carry-in stocks. Production is projected to drop by 22%, but is still expected to be the fifth highest on record. Total supply is expected to decrease at a slower pace due to the record-high carry-in stocks. Domestic crush and exports are forecast to be unchanged at near record levels, but will face stiff competition from large competing supplies of soybeans and palm oil. Carry-out stocks are forecast to decline but remain extremely burdensome. The average price is forecast to decline under pressure from burdensome Canadian canola carry-out stocks and low US soyoil prices.

Flaxseed: Lower Production and Stable Prices

The area seeded to flaxseed is forecast to fall by about 4% from the 10 year highs set in 2005-2006, because of burdensome carry-in stocks and low prices relative to cereals. Production is projected to decline by 12%, but remain sharply above the 5 year average. Total supply is projected to rise to the highest level since 1999-2000 as the large carry-in stocks more than offset the drop in output. Exports are forecast to remain stable on steady EU and US import demand and continued high crude oil prices. Carry-out stocks are expected to rise, but remain below 20 year highs. The average price is expected to remain stable.

Soybeans: Lower Production and Lower Prices

The area seeded to soybeans is forecast to decline due to competitive expected net returns for corn. Production is forecast to decline slightly. Total supply is projected to fall by 4%, despite support from higher imports. Domestic crush is forecast to remain stable at a near record pace while exports are projected to remain near record highs as a result of strong world demand for edible soybeans. The average Chatham price will be pressured by low US soybean prices and is forecast to decline slightly from 2005-2006.

Pulse And Special Crops

Dry Peas: Lower Production and Higher Prices

World production is forecast to increase by 4% from 2005-2006, to 11.7 Mt, due to higher production in the EU and US. Supply is expected to increase by 2% to 12.5 Mt.

Canadian seeded area is forecast to increase because of good deliveries in 2005-2006, relatively low carry-in stocks and low fertilizer requirements, but with production declining marginally due to lower yields. Supply is forecast to decrease because of lower production and carry-in stocks. Exports are expected to decrease because of higher world production and lower Canadian supply, while domestic use increases because of stronger demand in the domestic feed market. Carry-out stocks are forecast to decrease, with a stocks-to-use ratio (s/u) of 8%.

The pressure from higher world supply is expected to be more than offset by stronger demand, especially in the domestic feed market. Therefore, the average price of dry peas over all grades, types and markets, is forecast to increase slightly.

Lentils: Lower Production and Stable Prices

World production is expected to decrease by 7% to 3.8 Mt, but supply is forecast to increase by 2% to 4.6 Mt.

Canadian seeded area is forecast to decrease due to historically low prices, relatively low expected net returns and high carry-in stocks, with production forecast to drop by 25%. Production of red lentils is expected to increase while production of green lentils decreases. Supply is expected to increase slightly, due to higher carry-in stocks. Exports are forecast to increase due to stronger demand and higher Canadian supply of red lentils. Carry-out stocks are expected to increase slightly, with a s/u ratio of 64%. The average price of lentils over all grades and types is forecast to remain stable as pressure from higher world supply is offset by stronger demand.

Dry Beans: Higher Production and Stable Prices

The most important influence on Canadian dry bean prices is US production, which is forecast to decrease by 13% to 1.03 Mt because of lower seeded area, higher abandonment and lower yields. However, US supply is expected to decrease by only 5% to 1.26 Mt due to higher carry-in stocks.

Canadian seeded area is forecast to decrease because of historically low prices, but production and supply are forecast to rise due to lower abandonment and higher yields. Exports are expected to increase due to the higher supply. Carry-out stocks are forecast to increase but remain relatively low, with a s/u of 9%. The average price, over all classes and grades, is forecast to remain stable as pressure from higher Canadian supply is offset by lower US supply.

Chickpeas: Higher Production and Lower Prices

World production is forecast to remain stable at to 8.6 Mt, with an increase for the kabuli type and a decrease for the desi type. Supply is expected to increase marginally to 9.0 Mt because of higher carry-in stocks.

Canadian seeded area is forecast to increase due to good prices and relatively high expected net returns. Production and supply are forecast to increase only slightly as a result of lower yields. Exports are forecast to increase slightly and carry-out stocks are expected to increase but remain relatively low. The average price, over all types, grades and sizes, is forecast to decrease due to the higher world supply of the kabuli type, which accounts for about 90% of Canadian production.

Mustard Seed: Lower Production and Higher Prices

World mustard seed trade is dominated by Canada. Canadian seeded area is forecast to decrease sharply because of historically low prices and relatively low expected net returns. Production and supply are both forecast to decrease. Exports are expected to increase due to higher demand and carry-out stocks are forecast to decrease, with a s/u ratio of 48%. The average price, over all types and grades, is forecast to increase due to the lower supply.

Canary Seed: Lower Production and Higher Prices

World canary seed production is forecast to decrease by 31% to 185,000 because of lower production in Canada. Supply is expected to decrease by only 16% to 365,000 due to higher carry-in stocks.

Canadian seeded area is forecast to decrease sharply because of historically low prices, relatively low expected net returns and high carry-in stocks. Production and supply are forecast to decrease. Exports are expected to increase slightly due to higher demand and carry-out stocks are forecast to decrease, with a s/u ratio of 44%. The average price is forecast to increase slightly due to the lower supply.

Sunflower Seed: Higher Production and Marginally Higher Prices

World sunflower seed production and supply are forecast to decrease by 3% to 28.6 Mt and 30.1 Mt, respectively. US production is expected to decrease by 18% to 1.5 Mt, due to lower trend yields, and supply is forecast to decrease by 9% to 1.75 Mt.

Canadian seeded area is forecast to increase due to relatively high expected net returns. Production and supply are forecast to increase because of the higher seeded area, lower abandonment and higher yields. Exports are expected to increase because of lower supply in the US and higher Canadian supply. Carry-out stocks are forecast to increase, but remain relatively low with a s/u ratio of 13%. The price of the oilseed type is expected to be supported by lower world and US supply, while the price of the confectionery type is expected to be stable due to stable North American supply. Therefore, the average price, over both types and all grades, is forecast to increase only marginally.

Buckwheat: Production and Prices Remain Stable

Canadian production and supply are forecast to remain stable, as a higher seeded area is offset by lower yields. Prices are expected to remain stable.

by Glenn Lennox, Wheat Analyst; Joe Wang, Coarse Grains Analyst; Chris Beckman, Oilseeds Analyst; Stan Skrypetz Pulse and Special Crops Analyst

While the Market Analysis Division assumes responsibility for all information contained in this bulletin, we wish to gratefully acknowledge input from the following: Statcom, Canadian Wheat Board, Market and Industry Services Branch (AAFC))