All Things Considered: August 2011
Jim KnisleyFeatures New Technology Production Poultry Production
The agricultural situation on the Prairies is worse than first thought. Prior to the Canadian Wheat Board’s (CWB) mid-June forecast of crop prospects, the most dire assessment that I saw was that flooding would prevent the seeding of about five million acres. The CWB, which has better and more complete information than anyone else – the federal government included – estimates that six to eight million acres won’t be seeded. This comes on top of the more than 10 million acres that was unseeded last year because of wet weather. To put this in perspective, the last two years have been the worst in the last 50 years.
Bruce Burnett, CWB director of weather and market analysis, said: “This is occurring at a time when grain prices are extremely high, adding insult to injury.”
That understates the situation. It is adding injury to injury.
While the CWB doesn’t get into the extent of the economic damage, aside from conceding the farmer losses will be in the billions, there is no need for such reluctance.
A conservative estimate would put average wheat production at a tonne an acre. There are just under 37 bushels of wheat in a tonne and prices this year look to be in the $8 a bushel range though they may trend higher. Lost revenues this year come in at about $2 billion. If you add on production lost to seeding late or seeding into saturated fields losses could easily surpass $3 billion. Add to that the $2.5 billion to $3 billion that disappeared into last year’s mud and you have something in the range of $5 billion.
Even if these back of the envelope calculations are off, the amounts are daunting and those are just direct losses. Add on all the spinoffs – farm supplies, transportation, grain handling, lost equipment sales and more – and you get into some truly large 10- or 11-digit numbers.
It’s not just wheat and barley that are expected to be down. Canola is also expected to see reduced seeding this year.
“Many farmers in the wettest areas have planted next to nothing this spring, while others are watching their newly emerged crops drown,” said Burnett.
The situation is worst in southwestern Manitoba and southeastern Saskatchewan. But large areas of farmland have been abandoned and pockets of severely wet areas dot the entire southern Prairies.
The U.S. Department of Agriculture (USDA) forecast in early June that world wheat production would be the third highest ever. But that forecast didn’t account for the seeding difficulties on the Canadian Prairies or similar troubles in the Dakotas and other areas in the northern tier of the United States.
CWB analysts also reported that the U.S. is harvesting a drought-reduced Kansas winter-wheat crop, while a major drought is affecting crops in Europe. Russia has seen some drought recovery but still needs timely moisture for its spring crops.
But the big story for the USDA is the problems facing the U.S. corn crop. The USDA is projecting a decrease in corn stocks that are already in short supply.
“Corn is a major focus because of the price ripple effect it has for all crops,” Burnett said.
In its June report the USDA projected sharply lower feed grain supplies for 2011/12 and less land planted to corn.
“Planting delays through early June in the eastern Corn Belt and northern Plains are expected to reduce planted area, more than offsetting likely gains in the western Corn Belt and central Plains where planting was ahead of normal by mid-May,” the USDA report said.
The result will be “sharply lower” feed grain ending stocks with expected corn ending stocks down 205 million bushels to 695 million. This reduction in ending stocks shows that production is not keeping pace with demand. The result is that ending stocks for the 2011/12 crop year are lower than beginning stocks, indicating a stocks-to-use ratio of 5.2 per cent compared with the 2010/11 forecast ratio of 5.4 per cent, the USDA said.
A stocks-to-use ratio of 5.2 per cent is very low and is being reflected in higher prices. The picture is the same worldwide. Global coarse grain supplies for 2011/12 are projected to be down, with lower beginning stocks and production.
Global ending corn stocks for 2011/12 are projected down sharply at 111.9 million tons, the lowest since 2006/07.
The USDA report is likely optimistic. It appears there is a greater prospect for corn and wheat supplies to be tighter than projected by the USDA.
It looks like grain markets could be in for a wild ride over the next 12 months.
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