Canadian Cereals Situation
-Monday, November 13, 2000
This analysis featured in the November 13, 2000 issue of the HGCA's MI Prospect, Volume 3, Number 10
Key Points
- Durum area up, other wheat down
- Barley production up
- Both crops hit by difficult harvest weather
- Quality supplies, particularly malting barley, limited
Although total wheat production is only expected to be slightly down on last season, this hides a sharp drop in spring wheat production and rise in durum production. Meanwhile, barley production is estimated slightly higher. But with harvest problems in many malting barley regions, supply of malting quality may be lower.
The Canadian wheat harvest was relatively small as farmers continue to diversify into other crops. The durum wheat crop was, however, the second largest on record and as Canada is a major producer of durum, this has put a damper on durum price prospects.
Crop development and harvesting conditions for malting barley on the Prairies have been poor and supplies will be limited. As Canada is a major player in international malt markets, the situation contributes to the recent relative robustness of world malt and malting barley markets.
top of pageCanada's position as a major player in the world wheat market has declined over the years, as Prairie farmers have increasingly diversified. Canadian production this year is estimated at about 25.5 million tonnes (see Table 1). This is about 5 percent of total world output. Projected exports of 18M tonnes are about 15 percent of total world trade.
Table 1: Canadian Crop Production --------------------------------- million tonnes 89-'98avg 1999 2000 All wheat 27.2 26.9 25.7 Spring excl. Durum 21.6 20.9 18.4 Durum 4.4 4.3 5.5 Winter wheat 1.2 1.7 1.8 Oats 3.2 3.6 3.4 Barley 12.7 13.2 13.4 Rye 0.4 0.4 0.3 Flax 0.8 1.0 0.7 Canola 5.3 8.8 6.9 corn 7.0 9.1 n/a Soyabeans 1.9 2.8 2.7 Peas 1.1 2.3 2.8 Lentils 0.7 0.7 1.0 Source: Statistics Canada, Agriculture Canada
As recently as the 1960's Canada in some years accounted for 10 percent of world production and more than a third of world trade. With advances in baking technology, demand for hard red spring wheat has declined and prairie farmers have switched to other classes of wheat, canola rapeseed, malting barley and pulses.
Canada is, however, still an important source for the durum and the shrinking high quality hard red spring wheat markets. It accounts for as much as two thirds of world durum trade. With hard red spring wheat its dominance is less well defined as flour from this wheat is often blended with flour from lower quality wheat.
Production of both these spring wheats is centred in south central areas of the Prairies and extends across the US border. This area is dry. Both yields and quality can be drastically affected by weather conditions. The size and quality of the Canadian harvest can, therefore, be an important market factor.
Canada expects a non-durum wheat crop this year of 18.4 million tonnes, which is relatively small by Canadian standards, with both acreage and yield being towards the lower end of the typical range. Canadian Western Red Spring (CWRS) area in particular fell, dropping 4% to 8.3M hectares. Low wheat prices relative to durum wheat, oilseed and pulse prices prompted this drop to the second lowest area since harvest 1973. The crop is of middling quality. Canadian year-end wheat stocks are expected to tighten up further from their current low level. But this is not expected to have had or have a major impact on global price prospects.
The Canadian Wheat Board (CWB), which handles all wheat and barley exported and used for industrial purposes, is projecting wheat pool returns ranging from £97 (Can$216) per tonne for top quality to £59 (Can$130) for feed quality. These prices are slightly higher than a year ago, at least in Canadian dollar terms. Also, note that these prices are in-store Vancouver or St. Lawrence ports. To calculate ex-farm prices deduct £18 to £23 per tonne for rail freight and other handling charges, plus trucking costs to the elevator (see mi prospects 26 June 2000).
The Canadian durum crop is estimated at 5.5 million tonnes, second only in size to the 1998 crop. In particular, the increase in durum area was largely due to high durum wheat prices last season. Total harvested durum area was up 46 percent to 2.6M hectares. While Canadian export prospects look quite favourable, there will be a substantial build up in Canadian year end stocks, which means durum prices look unlikely to repeat last years high levels. Durum carry-out stocks are currently forecast to rise by 28 percent to 2.3M tonnes. The quality end of the market has, however, held up as other exporters have encountered quality problems.
top of pageCanada is a small player in world feed grain markets. Canada's 2000 barley harvest is estimated to be 13.4 million tonnes, about 1.5 percent of world production, and projected 2000-01 Canadian barley exports of 3.1 million tonnes are about 3 percent of world coarse grain trade.
It is, however, a major player in both world malt and malting barley markets. About 60 percent of Canadian barley acreage is seeded to potential malting varieties but less than a third is typically selected for malting purposes. On the Prairies, perhaps more so than elsewhere in the world, growing and harvesting conditions are critical for producing a malting sample. Canadian farmers have understandably dubbed it "Lotto Malt."
While the risk for individual farmers is high, Canada is normally a consistent supplier of malt and malting barley because it has such a large area to select from. If one region has difficult weather, another will do better. Following hot dry summers most malting barley will be selected from northern areas, while after a wet summer and harvest most will come from southern regions.
This year may be an exception. In Alberta where 2-row varieties for offshore markets dominate, the south of the province had a dry summer, while the northern areas have had a very difficult harvest. In the eastern Prairies and particularly Manitoba where 6-row varieties for North American markets dominate, there has been an outbreak of fusarium head blight that has limited supplies suitable for malting.
Most hopeful Canadian farmers submit their malting samples for selection directly after harvest. This year trade sources have suggested that only about 1.4 million tonnes of the typical two million tonnes have been selected. Farmers have the opportunity to resubmit and buyers to lower their quality requirements. But the die appears cast in terms of limited supplies of Canadian malt and malting barley, particularly for two-row barley for export.
While Canadian supplies of malting barley this year may be as large as those from the 1998 and 1999 crops, selection of malting barley was limited in both those years by relatively poor demand and in 1998 by a poor quality harvest (see chart 1). With the recovery in economic conditions in South-East Asia, exports could have exceeded mid-1990 levels if growing and harvesting conditions had been better. Australia, the other major source of malting barley, is also facing the prospect of a poor harvest.
Source: Canadian Wheat Board, Statistics Canada, trade sources.
continued
The CWB is projecting a pool return of £90.54(Can$201) for special select 2-row barley, more than £30 above feed barley prices. Canadian sources suggest these premiums could be sustained at least until the European harvest next summer and possibly until next year's Canadian crop is available for export in October 2001.
David Walker 01603 705153
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