North American Grain Review
- Monday, December 23, 2002
This analysis featured in the December 23, 2002 issue of the HGCA's MI Prospect, Volume 5, Number 13
With the exceptionally poor 2002/2003 North American grain supply conditions, resulting from very widespread drought, having been confirmed by final production estimates, interest has turned to demand prospects. While US export sales have continued at a respectable rate in view of limited supplies, prices continue to back off from their late summer highs.
Key points
- US and Canadian crops sharply lower
- Exports still OK, especially quality wheat
- Feed grain prices hit by Black Sea
- Barley availability sharply lower in Canada
- US 2003 winter wheat crop good
- Moisture in areas to be spring planted still a concern
Combined US and Canadian wheat production this year is estimated to be less than 60M tonnes, about two thirds of what might be regarded as a typical crop. Drought conditions prevailed over much of the main production region from southern Texas to northern Alberta. Moisture reserves were at low levels in the spring and were not replenished by sufficient rainfall during the growing season to sustain crop development.
This drought was sufficiently severe and widespread to have a material impact on overall yields (see graph 1). The average US wheat yield of 2.37 tonnes per hectare was the lowest since 1991. Wheat yields in Canada were cut for a second successive year to a level not seen since 1989.
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Northern American coarse grain production is estimated at 265M tonnes, about 10 percent below a typical crop. Moisture conditions in the US Corn Belt were, in fact, favourable in the spring, but a hot and relatively dry July for the critical silking period reduced yields around 0.75t/ha below the long-term trend.
End-season stocks of North American grain have been reduced in recent years, and particularly so by last year's drought on the Canadian Prairies. Combined with smaller crops these reduced carryover stocks further decreased the level of exportable supplies. It was apparent as early as July when the impact of the drought on yields started to emerge that the region would not play its traditionally dominant role in international grain markets.
North American grain prices rose to reflect the need for the rationing of limited supplies, particularly for better quality wheat, supplies of which were most restricted by the drought (see graph 2). At the time this seemed a rational market response in view of the dominant role North America grain supplies have traditionally played in world markets.
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With the emergence of Black Sea ports as a continuing source of competitively priced grain, however, the increase in North American prices has looked progressively less sustainable, particularly for feed quality grain. But US export sales have been well maintained, despite premium prices. In early December cumulative US export commitments for wheat and corn were only four and seven percent, respectively, below year-ago levels despite substantially reduced supplies.
Against this, however, both Canada and the US have imported feed wheat from non- traditional sources, for Canada the Ukraine and for the US, of course, UK wheat.
The USDA still projects that end of season stocks will fall to 9.5M tonnes. This would result in a stock to use ratio of 16.4 percent, down from 35.9 last year, and the tightest supply balance since 1995-96 (see table 1). Maize stocks are projected to fall to 21.4M tonnes with a stock to use ratio of 8.6 percent down from 16.4, also indicating a tight supply situation. In retrospect the response of US markets to this tight supply situation has been relatively muted. The USDA estimated average farm gate prices of US$4.55 per bushel in 1995-96 compared with current projections of US$3.65 - US$3.95 for this crop year.
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Table 1: Summary US Supply and Demand
Wheat
'000 tonnes 1998-99 1999-00 2000-01 2001-02 2002-03
estimated projected
Carry in 19,650 25,740 25,850 23,850 21,150
Production 69,330 62,570 60,760 53,260 43,990
Imports 2,803 2,586 2,449 2,939 2,177
Supply 91,783 90,896 89,059 80,049 67,317
Domestic use 37,694 35,381 36,306 32,714 31,734
Exports 28,359 29,665 28,903 26,155 25,855
Carry out 25,740 25,850 23,850 21,150 9,460
Disposition 91,793 90,896 89,060 80,018 67,049
Coarse Grains
'000 tonnes 1998-99 1999-00 2000-01 2001-02 2002-03
estimated projected
Carry in 38,100 51,370 48,860 52,700 45,090
Production 271,470 263,170 273,130 261,860 245,230
Imports 300 270 260 240 260
Supply 309,870 314,810 322,250 314,800 290,580
Domestic use205,000 211,700 215,100 217,000 213,100
Exports 55,900 56,400 56,600 54,700 55,000
Carry out 51,370 48,860 52,700 45,090 24,760
Disposition 312,270 316,960 324,400 316,790 292,860
Source: United States Department of Agriculture, December 2002
But despite this, prices have continued to decline over the last few months. US wheat prices are still above price levels that prevailed before the drought, but those for feed grain, and specifically maize, have backed off to close to their summer levels.
Following a second successive drought reduced crop Canadian wheat exports are currently projected by Agriculture Canada to fall below 10M tonnes, less than half normal levels and the lowest level since 1969 (see table 2). Not only were yields cut by drought but quality was reduced by early frosts and difficult harvest conditions. A larger than usual proportion of the crop will be fed, supplementing short feed grain supplies.
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Table 2: Summary Canadian Supply and Demand
Wheat
'000 tonnes 1998-99 1999-00 2000-01 2001-02 2002-03
estimated projected
Carry in 6,009 7,425 7,699 9,658 6,488
Production 24,082 26,941 26,519 20,568 15,690
Imports 80 14 60 97 235
Supply 30,171 34,380 34,278 30,323 22,413
Domestic use 8,023 8,368 7,511 7,628 8,563
Exports 14,723 18,313 17,110 16,207 9,500
Carry out 7,425 7,699 9,658 6,488 4,350
Disposition 30,171 34,380 34,279 30,323 22,413
Coarse Grains
'000 tonnes 1998-99 1999-00 2000-01 2001-02 2002-03
estimated projected
Carry in 4,260 4,876 5,673 4,327 3,470
Production 26,575 26,832 24,031 22,600 19,589
Imports 952 1,064 2,925 4,051 4,920
Supply 31,787 32,772 32,629 30,978 27,979
Domestic use 22,829 22,864 23,707 24,068 22,549
Exports 4,081 4,235 4,594 3,439 2,540
Carry out 4,876 5,673 4,327 3,470 2,890
Disposition 31,786 32,772 32,628 30,977 27,979
Source: Agriculture and Agri-Food Canada, December 2002
Carry-out stocks of Canadian wheat are forecast to decline to 3.5M tonnes, the lowest level in over 40 years. The Canadian Wheat Board is projecting pool returns, average prices for the season, for No.1 CWRS 11.5% protein of Can$292, equivalent to £120 per tonne, in-store at Vancouver/St. Lawrence ports.
From a production standpoint about the only crop to do relatively well this year was durum wheat. Area was increased and, as it is mainly grown in the southern Prairies and away from the worse effect drought areas, output increased.
Canadian barley exports, including malt, are projected to reach only 850,000 tonnes, a third of what might be expected in a typical year and the lowest level since 1968. Feed barley exports will be next to zero, and after allowance for 6-row malting barley shipments to the US and malt exports, actual 2-row barley exports are likely to be only around 300,000 tonnes.
The direction of North American prices, and, indeed, those of international grain markets generally, for the balance of the season are likely to be determined by the availability of Black Sea port grain, whether Ukranian or Russian. It is evident, however, that North American grain supplies will be very tight at least until the 2003 harvest.
It is too early to make any definitive assessment of 2003 North American production prospects. But the condition of US winter wheats in late November was improved over a year ago, with a 61 percent good or excellent condition rating compared with 44 percent a year ago. Informal surveys also point to an 8% to 10% increase in US winter wheat area. Improved crop prospects are most evident in the southern Great Plains states, including Kansas and Texas.
Sub soil moisture levels are, however, more severe in the most drought affected areas of western Canada than a year ago. Spring seeded crops in these areas will certainly require above average rainfall next summer to achieve average yields.
David Walker
phone: 01603 705153
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