Report Highlights:

Total production of wheat, barley, oats and corn is forecast to fall 22 percent in 2014 to 51.4 million metric tons (MMT) from year 2013’s combined record levels of 65.8 MMT. High supplies and a weaker Canadian dollar, combined with strong world demand are forecast to keep exports above average levels in 2014/2015. Focus has been put on moving the grain to export positions on the West Coast which has caused service disruptions to domestic and U.S. millers who depend on rail for delivery. Proposed legislation to improve the accountability between stakeholders on the grain handling system, as well as lack of rail competition has been introduced into Parliament.

IN BRIEF:

2014/2015: The record breaking grains and oilseed crop in 2013 will have a carry-over effect into planting decisions for 2014/2015. The large crop combined with logistical issues that slowed down the movement of the crop to export positions has resulted in producers having to make seeding decisions without knowing exactly what will be the carry-over from the current crop. Strategic decisions on which crops will bring in the most revenue as well as transportation and delivery options will be critical factors in planting decisions. With carry-over stocks that are significantly higher than average for wheat, durum, barley and corn, there is the expectation that there will be reduced acreage seeded to these crop compared to 2013 levels. Area seeded is forecast to return to close to the five-year average for wheat, durum and corn. Barley is forecast to fall to 8 percent below the five-year average due to high stocks and a limited domestic demand. Oats acreage is expected to increase 8 percent. Crops that are also forecast to see increased acreage are the pulse crops, oilseeds and special crops. With a return to normal yields presumed, Post forecasts total production of wheat, barley, oats and corn to fall 22 percent in 2014 to 51.4 million metric tons (MMT). This is marginally below the five-year average. High supplies, a weaker Canadian dollar and continued strong world demand are forecast to keep exports above average levels in 2014/2015. 

2013/2014: Total production of wheat, barley, oats and corn in 2013 was 65.8 MMT, a 29 percent increase over 2012 production levels of 51.1 MMT. The huge crop has put a strain on the grain handling and transportation system and has become a flashpoint for the need to improve the capacity of the rail system for all commodities. Weather-related logistical problems kept railways from being able to keep up with demand and has limited Canada’s grain industry’s ability to fully leverage its high grains supplies and weaker Canadian dollar. The cost of the delays have been significant – lost sales, a drop in prices, producers unable to deliver and unable to pay back loans, demurrage costs and damage to the Canadian reputation of being a reliable supplier. During the winter, focus has been put on moving the grain to export positions on the West Coast which has caused service disruptions to domestic and U.S. millers who depend on rail for delivery. With the weather improving, government official have stated that that the backlog will be cleared before the beginning of the next marketing year. Even if the industry can regain the ground lost during the slowdown that occurred during the winter months, current estimates call for a significant carry-over. 

HIGHLIGHTS

Total production of wheat, barley, oats and corn is forecast to fall 22 percent in 2014 to 51.4 million metric tons (MMT) from year 2013’s combined record levels of 65.8 MMT. High supplies and a weaker Canadian dollar, combined with strong world demand are forecast to keep exports above average levels in 2014/2015. Focus has been put on moving the grain to export positions on the West Coast which has caused service disruptions to domestic and U.S. millers who depend on rail for delivery. Proposed legislation to improve the accountability between stakeholders on the grain handling system, as well as lack of rail competition has been introduced into Parliament.

ALL WHEAT OUTLOOK 

Production

2014/2015: In 2014/2015, POST forecasts area seeded to all wheat to fall 11 percent from the previous year’s level and move close to the 5-year average of 9,524 thousand hectares (THa). Presuming that wheat yields will return to more average levels, wheat production is forecast to fall to 28.0 MMT, a 25 percent drop from year 2013 levels. Supply is forecast to fall by only 7 percent, as high carry-in stocks will partially offset the anticipated decrease in production. 

2013/2014: The 2013/2014 growing season had a late start but ideal environmental conditions resulted in one of the largest wheat crops on record. Total supply is expected to increase by 28 percent and it is highly likely that as much as 6 million tons of wheat will not make it to market this year because of supply chain constraints.

Trade 

2014/2015: Strong domestic supplies, lower world production, and continued strong demand for wheat are forecast to result in total wheat exports of 21.0 MMT. 

2013/2014: Strong world demand, strong supplies, a weaker Canadian dollar, and the resolution of logistical issues will support exports in 2013/2014. 

Due to the large crop, and based on six months of trade data, the pace of wheat grain exports is 12 percent ahead of last year’s pace for the same time period, and 27 percent ahead of the five- year average of 8.6 MMT. Based on five-year averages, for wheat grain, by this time of the year nearly 50 percent of the crop will have been exported. Should the trend hold, and taking into consideration the capacity of the grain handling system, wheat grain exports are expect to reach the record level of 21.75 MMT. There are concerns regarding the amount of grain that is being stored on farm rather than in inland terminals and ports which is more typical for this time of the year. The ability of farmers to deliver to the inland terminals may be hampered by spring conditions, road restrictions and seeding. The Prairie provincial governments are looking at the specific issues and determining ways to address them. Exports of wheat (grain) to the United States based on trade data from August until the end of January shows that exports to the United States has increased 37 percent compared to volumes the previous year. This is a reflection of the large crop and more wheat grain being delivered by trucks to some delivery points close to the Manitoba/North Dakota border. Historically, the Canadian Wheat Board has sold low volumes of wheat into the U.S. market. Large domestic supplies are also limiting the imports of wheat grain. Six months of trade data reveals that wheat imports are 70 percent below the previous year’s levels for the same period. 

The pace of wheat products (flours and couscous) exports continues above the previous year’s level. Six months of trade data show exports of wheat products continue to be 11 percent above the previous year; however are 6 percent below the five-year average of 140 MT. This decrease from the five-year average is reflective of a longer term trend that has exports of wheat products trending downwards for the past 10 years due to a reduction of processing in Canada. Exports of wheat products are expected to reach 260 TMT, slightly higher from the previous year’s level of 249 TMT, but still well below the five-year average of 275 TMT. Based on six months of trade data, imports of wheat products are 13 percent down from the previous year for the same time period. Imports are limited due to the large domestic supply. 

Total wheat exports (products plus grain) are expected to reach a record level 22.0 MMT, 17 percent above the previous year’s levels. This represents record export levels. Export demand may be tempered by slightly higher world supplies (increased competition), as well as limited by the capacity of the Canadian grains transportation system to get the wheat to export markets. 

Domestic Consumption 

2014/2015: Domestic consumption of wheat will remain strong due to high supplies and slightly lower prices.

2013/2014: Domestic consumption of wheat will increase from the previous year’s level due to lower prices and higher supplies. The impact of less conventional methods of storage used to store the record crop may also have a downgrading effect on wheat quality which could result in more feed wheat being available. Domestic consumption however will be limited by the fact that the Canadian livestock industry is not growing significantly, despite lower feed prices and high livestock prices. 

Stocks

2014/2015: Carry-out stocks are forecast to continue to remain well above average at 9.2 MMT.

2013/2014: While stocks typically are approximately 15 percent of supply, in 2013/2014, stocks are expected to grow to levels not seen in more than 20 years and are forecast to increase from 5 to more than 11 million tons.

BARLEY OUTLOOK

Production

2014/2015: The high carry-over of barley stocks, uncertainty around logistical issues and stable herd size in Canada is likely to result in less acreage being seeded to barley in the spring of 2014 than the previous year. Post anticipates that area seeded to barley will decrease by 5 percent compared the 2013 levels, and 8 percent from the 5-year average of 2,966 THa. A return to normal yields is forecast to result in barley production being close to 8,005 TMT. Supply is only forecast to fall by about 7 percent as high the decrease in production is not enough to offset the high carry-in stocks 

2013/2014: Ideal growing conditions in 2013/2014 resulted in a 28 percent jump in barley production compared to the previous year. The quantity of high quality malt quality barley produced this year is also very high, more than 1.5 times the average. Malt barley typically accounts for a small percentage of production.

Trade

2014/2014: High domestic supplies and the resolution of logistical issues are anticipated to result in increased barley exports in 2014/2015. Barley exports are anticipated to reach 1,500 TMT in 2014/2015, a 3 percent increase from 2013/2014 levels. 

2013/2014: The pace of barley exports continues to be significantly below the previous year for the same time period (30 percent below), and nearly 15 percent below the pace of the five-year average. Exports to the United States are 38 percent down from the previous year. The slow pace of exports is due to a combination of reduced demand from the United States due to a larger domestic corn crop and a shrinking herd size, and limited rail capacity to run trains south. Canadian rail companies have been focused on moving grain to the western ports to clear the backlog of grain as quickly as possible while working under reduced capacity due to longer than predicted cold weather. As the weather improves, the rail capacity to run shorter trains south should also improve. As bottlenecks unblock, exports of barley will advance and are estimated to reach 1.450 MMT by the end of the marketing year. Demand for Canadian malt barley by the United States is also tempered by the fact that the United States also had a good sized malting barley crop in 2013. 

Domestic Consumption

2014/2015: Despite ample supplies of feed grain and lower prices that are likely to continue into 2014/2015, the domestic demand for feed use is forecast to remain steady as the industry continues to consolidate. 

2013/2014: Domestic demand for barley for feed purposes is expected to increase slightly as it replaces feed wheat as the cheaper feed option. Despite cheap feed costs, and high cattle prices, Canadian herd sizes are not growing and are in a state of consolidation while farmers decide how to operate in an uncertain environment. As a result, while the availability of cheaper feed has grown 25 percent, demand will likely only increase 5 percent. The oversupply of quality malting barley means that the premiums usually associated with high quality malt barley are coming under pressure. Producers are faced with the decision to sell now or to store the barley until prices improve in the next year.

Stocks

2014/2015: Decreased production and slightly higher exports is forecast to draw down barley stocks to more average levels.

2013/2014: Stocks will increase as the exports and domestic consumption are not high enough to offset the high production levels resulting from unexpectedly high yields.

CORN OUTLOOK

Production

2014/2015: Seeding intentions with regards to corn will be influenced by lower corn prices, high carry-in stocks and what direction the ethanol industry in Canada will be taking in the next five years. Area seeded to corn is expected to move closer to the five year average, which represents a nearly 10 percent decrease in area seeded over the previous year’s levels. Area seeded to corn is forecast to be 1.350 THa. With a return to normal yields presumed, corn production is forecast at 12.2 MMT, close to the five-year average of 12.0 MMT.

2013/2014: Crop year 2013/2014 will see higher than average corn supplies in Canada due to higher than average yields.

Trade

2014/2015: High domestic stocks will continue to limit U.S. corn imports in 2014/2014. A weaker Canadian dollar and high domestic supplies will keep corn exports slightly above the five-year average. Corn exports in 2014/2015 are forecast to remain close to 2013/2014 anticipated levels of 1.0 MMT. 

2013/2014: High corn supplies, well above the five-year average, are expected to limit the demand for corn imports. Canada’s export opportunities in 2013/2014, despite a weaker Canadian dollar and high supplies, will be limited due to the large U.S. corn crop. While exports are expected to fall 43 percent from the previous year’s level to an estimated 1.0 MMT, corn exports will still be above the five-year average of 890 TMT. 

Domestic Consumption

2014/2015: Canada’s domestic ethanol industry is still quite young in comparison to the ethanol industry in the United States. Corn production has increased significantly over the last five years due to higher prices as well as provincial and federal mandates for the renewable content in the gasoline pool coming into effect. With the federal support for many ethanol plants sunsetting, and no indication that provincial mandates are likely to increase, corn production is unlikely to keep growing at the rate it has been over the last five years. Domestic consumption of corn for ethanol use will likely grow more slowly to reflect the needs of the mandates. While lower corn prices will increase domestic consumption for feed use, this increase will be limited by the consolidation that is on-going in the Canadian livestock industry. 

2013/2014: Feed usage is expected to increase due to lower prices; however this increase will be limited due to the fact that the livestock herd size in Canada is not showing signs of growing and is instead in a period consolidation. With no increase in the renewable mandates that are in place at both the federal and provincial levels, no dramatic increase from the ethanol industry for corn is expected. A slight increase is anticipated to reflect the mandate requirements.

Stocks 

2014/2015: Stocks are forecast to be drawn down to 3.0 TMT as the forecasted decrease in production, increase in exports, and increase in domestic usage will be high enough to offset the high carry-in stocks. 

2013/2014: Carry-out stocks will be significantly higher than average due to high supplies that were not offset by domestic consumption and exports.

OATS OUTLOOK

Production 

2014/2015: Transportation issues which has affected the ability to move oats south to some parts of the United States has driven up oats futures. Acreage seeded to oats is forecast to increase by 8 percent in 2014/2015; however a return to average yields is likely to result in oats production falling nearly 16 percent below the previous year’s levels. At a forecasted 3.3 TMT, oat production is nevertheless expected to increase 7.8 percent above the five-year average of 3.0 TMT. Oats are expected to be more attractive this year in part due to the fact that the carry-over stocks for the more dominant crops are uncommonly high. Oat acreage in general has been trending downwards due to a reduced demand from the horse feed market, as well as new crops and shorter rotations being more lucrative. 

2013/2014: In 2013/2014, higher than expected yields resulted in a significant increase in oats production over 2012/2013 levels. Oats production reached 3.9 TMT in 2013/2014, a 38 percent increase from the previous year’s levels.

Trade 

2014/2015: The United States will likely remain the number one importer of Canadian oats in 2014/2015. A weaker Canadian dollar compared to the American dollar, higher than average supplies, as well as U.S. companies moving to hold larger stocks to avoid the logistical problems that occurred the previous year is expected to continue to lift oats exports in 2014/2015. Export levels are forecast to reach 1.8 TMT. 

2013/2014: Despite strong supplies, Canadian oats farmers have not been able to capitalize fully on the strong prices for oats due to a shortage of rail capacity running south to the United States. Approximately 95 percent of its Canadian oats exports go to the United States, while Japan accounts for approximately 2 percent. Six months of trade data show that exports are 17 percent the previous year’s level for the same time period. The rail situation in Canada has affected some segments of the industry much worse than others and prompted the American Surface Transportation Board to express its concern over the progressive deterioration of rail service that had been occurring across significant portions of the Canadian Pacific Railway Company network in the United States. While statistics support the fact that more trucks carrying oats are going south, the areas where this is an economically viable option are limited. With the weather improving, more normal levels of rail movement south should resume. Exports of oats for 2013/2014 are expected to reach 1.7 MMT. 

Domestic Consumption

2014/2015: Domestic usage is forecast to remain steady as the Canadian herd size remains stable. 

2013/2014: Domestic usage is forecast to remain steady as the Canadian herd size remains stable. 

Stocks

2014/2015: For 2014/2015, while area seeded/harvested is forecast to increase, production is forecast to fall 16 percent due to a return to average yields. High carry-over stocks are forecast to be off-set by a fall in production and increased exports. Stocks are expected to be drawn down to 1.1 MMT. 

2013/2014: Stocks will grow significantly in 2013/2014 and are expected to reach 1,164 TMT.

PULSES (Peas, Lentils, Beans and Chickpeas)

2014/2015: High carry-over stocks in wheat and barley is forecast to result in a 12 percent increase in area seeded to pulses over 2012/2013 levels, as well as a 5 percent increase over the 5 year average. Despite the increase in acreage seeded to pulses, a return to average yields is forecast to result in a production level of 5.6 MMT, a nearly 8 percent decrease from 2013/2014 levels, but also a 7 percent increase from the five-year average. Pulse exports are forecast to reach 4.5 MMT. 

2013/2014: Unexpectedly high yields resulted in a pulse production level of 6.1 MMT in 2013/2014. Transportation issues have been a going concern for pulse producers and special crops producers. Pulse exports in 2013/2014 are expected to reach 4.8 MMT.

POLICY

Federal Government Acts to Ensure Movement of Grain 

On March 8, 2014, the government of Canada announced an emergency measure to address the grain backlog that has been creating havoc along the grain industry supply chains. Through an Order in Council, the Canadian government began mandating minimum rail service for grains, requiring that Canada’s two main railways (Canadian National (CN) and Canadian Pacific (CP)) ramp up the volumes carried each week over the next 4 weeks to reach a combined target of 1 million metric tons, thus doubling current volumes being shipped. This is equivalent to approximately 11,000 cars (combined) per week. The authority for this Order in Council comes from section 47(1) of the Canada Transportation Act. Section 47(1) of the Act gives the Prime Minister, based on the recommendation of key ministers, the authority to take action if there is an extraordinary disruption of the transportation system, and when there are no other timely and appropriate remedies to the situation. The Act also provide for fines for non-compliance – in the case of a corporation, fines can reach up to $100,000 for each day that the corporation contravenes the order. An order in council has a limited life span – an order made under this section is in effect for no more than ninety days after the order is made. The purpose of this order was to ensure that the railways act to address the backlog of railcar orders that have gone unfilled. 

On March 24th, two weeks after the first measure was announced, the Canadian government introduced Bill C-30, Fair Rail for Grain Farmers Act, into Parliament which proposes changes to the Canada Grains Act and to the Canada Transportation Act with the hopes of ensuring better rail service through measures intended to increase accountability and competitiveness. Proposed amendments to the Canada Grains Act would enable the regulation of grain contract provisions by the Canada Grain Commission. The Canadian Grain Commission would have the authority to act as an arbitrator and be able to enforce the payment of compensation to a producer by a grain company, if the grain company does not honor the contract delivery date. This is an attempt to address the situation that happened during this current crop year where the inland terminals were full and the grain companies were forced to refuse delivery and hold off until more space could be made available. This caused significant economic hardship for some producers. It is unclear if this will have a significant impact as grain companies’ will likely wish to protect themselves and write contracts in such a way as to minimize their risk, something which may not work in producers’ favor. 

Amendments have also been proposed to the Canada Transportation Act. The amendments would give the Transportation Minister and the Agricultural Minister the authority to set minimum volumes require for grain to be transported until August 2016. This minimum volume would be set based on consultations with industry. The proposed legislation includes giving the Canadian Transportation Agency the authority to regulate some elements of arbitrated service level agreements. The proposed amendments also include expanding the interswitching distances from 30 kilometers to 160 kilometers in the three Prairie provinces. The purpose of this amendment is to increase competition between the two major railways. The Canadian government states that this will mean that more than 150 grain elevator would be served by more than one railway, including US railways. Currently, approximately 15 elevators are served by more than one railway. The proposed legislation will better reflect the consolidation that has occurred in the industry over the last 20 years. It is difficult to say if this will be a significant incentive for the railways to increase the capacity quickly since, as demonstrated this crop year, they are each tailored to meet a specific capacity and the cost of increasing capacity requires significant investment and therefore requires a significant amount of time. 

Grain industry stakeholders were somewhat disappointed with the legislation put forward. The general consensus seemed to be that it is a good start, but it needs to be taken further. The Western Grain Elevators Association, a lobby organization representing businesses which collectively handles the bulk of western Canada’s grain exports, issued a press release thanking the government for supporting efforts to improve the rail capacity issues, but also pointed out that more needs to be done including service level agreements that assure accountability. 

Canada-Korea Free Trade Agreement (CKFTA)

On March 11, 2014, Prime Minister Stephen Harper announced that Canada and the Republic of Korea had concluded negotiations for a bilateral free trade deal. This is considered a landmark agreement as it is Canada’s first free trade agreement in the Asia-Pacific region. 

The Canada-Korea Free Trade Agreement will allow for the progressive elimination of tariffs on 86.8 percent of agricultural tariff lines. 

Crops of interest to Canada that will receive immediate duty-free access include: 

• grains and special crops:

• wheat, including durum wheat – current duties of up to 3 percent;

• rye – current duties of up to 108.7 percent;

• oats – current duties of up to 554.8 percent;

• canary seed – current duty of 3 percent.

• oilseeds and oilseed products:

• canola – current duties of 10 percent;

• soybeans for soy sauce and soy-cake – current duty of up to 487 percent, or 956 Won/kg;

• mustard seed – current duty of 3 percent