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Mixed fortunes for Canadian farmers…

Rail blockades hindering Canadian grain exports…

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Rail blockades across Canada continue to paralyse grain movements, leaving export grain stranded on the nation’s Prairies and slashing grain export income by as much as US$7 million per day from lost sales, contract penalties and demurrage.

In early February protesters set up blockades east of Belleville, Ontario, and west of Prince George, British Columbia in solidarity with Indigenous leaders from the Wet’suwet’en Nation who oppose construction of a natural gas pipeline. Wet’suwet’en chiefs claim the proposed pipeline would run through the hereditary land of their people.

The blockades have since sprung up at several strategic locations across the country disrupting most key rail corridors bringing both passenger and freight train services to a grinding halt.

They have cut off critical crude-by-rail shipments to three eastern refineries that account for about a third of the country’s refining capacity. And farmers who rely on propane to heat livestock barns during the winter and keep animals comfortable are having to ration their supplies because of the blockades.

The dispute has struck a chord across the country and led to widespread protests that are about far more than the future of a single pipeline. It is giving voice to those who believe the Trudeau government is not delivering on its pledges to take climate change more seriously and transform its relationship with Canada’s indigenous people, who make up about 5 per cent of the population.

This is the latest crisis to face Justin Trudeau at the start of his second term as Canadian prime minister. After spending days calling for talks and making clear he didn’t want police to dismantle the blockades by force, Trudeau’s tone hardened late last week. He demanded aboriginal protesters lift the rail blockades that are hurting the economy and made it clear police would, if necessary, enforce injunctions to remove the obstacles.

About 94 per cent of Canada’s grain exports travel to port by rail on an annual basis. The blockades are further impeding grain shipments that already faced severe backlogs stemming from a delayed harvest and a week-long strike at the Canadian National Railway Company back in November last year.

According to data released by the Canadian government last Friday, wheat exports from all ports were less than 174,000 metric tonne in the week concluding Sunday February 16, down 37 per cent compared to the previous week and 28 per cent below the five-year average. Shipments of wheat from Vancouver, Canada’s main grain export hub, fell 68 per cent to 44,200 mt while exports from Prince Rupert decreased from 77,000 mt to zero.

The latest weekly grain monitoring report stated there were 40 vessels lined up at the port of Vancouver and ten at Prince Rupert as of February 16. The Vancouver line-up compares with the average of 24 vessels for the port, while the yearly average at Prince Rupert is only five. Eight grain vessels were cleared to sail from Vancouver in week 29 of the Canadian grain shipping calendar, but none from Prince Rupert.

The blockades are not only disrupting the passage of grain to port for export but seriously impeding each rail company’s ability to reposition empty rail cars back upcountry for loading. This has led to a sharp increase in upcountry elevator stocks. Growers have been delivering as arranged with exporters, but the grain is not being railed out of the sites at the same pace.

The effects on the Canadian farmer is real. As elevators fill up, growers have to stop delivering, and they don’t get paid when they are unable to deliver their grain. This may lead to a financial squeeze as farmers need the money to cover the costs to seed and fertilise the upcoming spring crop,

The ships currently waiting at anchorage put the 2019/20 shipping season on track to match the disastrous winter of 2013-14 for grain shipments. Agriculture and Agri-Food Canada’s February supply and demand estimates included a 400,000 metric tonne drop in exports of the grains and oilseeds for 2019-20.

The blockade comes at a time when grain sales, in particular wheat, have been booming into Asia. Canadian wheat sales to China were at a 14 year high in 2018/19, and the trend has continued this season. This is in stark contrast to canola, where the continuing trade dispute between the two countries has stymied the traditional trade flow.

The increased wheat enquiry from China is really by necessity. China needs to fill a void created by the long-running trade war with the United States and lower than normal exportable surpluses out of Australia after back-to-back droughts on the east coast. They have also purchased French wheat in recent weeks.

Sales of Canadian wheat have also been increasing to countries such as Indonesia, Philippines, Thailand, Vietnam and South Korea. The dynamic has changed to such an extent that in the 2019/20 marketing year Indonesia was Canada’s biggest global wheat customer. Their exports to Indonesia totalled 2.28 million metric tonne, almost double Australia’s shipments to the same destination.

Sales of Australian wheat to China have continued in recent weeks. However, with a smaller exportable surplus this season compared to last, the cupboard will be empty very quickly. This will frustrate our ability to take advantage of Canada’s grain export woes and clawback traditional Asian demand, particularly for Australian wheat.

Mixed fortunes for Canadian farmers…

Canadian farmers can’t take a trick this year…

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Canadian farmers produced the smallest canola crop in four years on the back of lower plantings and unusually wet autumn weather that left crops sitting in the paddock unharvested, the latest blow in a miserable year which started with the Chinese ban on canola imports.

The heavy snow and rain during harvest across the Canadian Prairies have left around 810,000 hectares of canola buried under snow until spring.

Crops that remain in the fields over the winter are subject to wildlife damage and moisture spoilage, but some of it can usually be salvaged and marketed at a discount in the spring. However, the need to harvest the previous crop once fields dry can seriously delay the commencement of the spring planting program in affected districts.

Statistics Canada released their Production of Principal Field Crops report last Friday the more than 700,000mt was dropped off the countries 2019/20 canola production. Estimated production came in at 18.65 million metric tonne (MMT), down 8.3 per cent on last season, and 2.9 per cent below the five-year average.

The total harvested area fell 8.8 per cent to 8.34 million hectares but yields did rise by 0.5 per cent compared to the 2018/19 season to 2.24 metric tonne per hectare.

Canada is the world’s biggest producer and exporter of canola, and the crop has long been regarded as the most profitable for the Canadian farmer. China, Japan and Mexico have traditionally been the key export destinations, with the seed primarily used for the production of cooking grade vegetable oil and canola meal for stockfeed rations.

In the absence of their largest export customer, demand has been falling, inventories have been rising, and prices have been lower as a result. Nonetheless, Canadian farmers are adjusting to the reality of life without China by working on cutting costs, improving efficiency and modifying crop rotations to decrease their reliance on canola.

As of November 24, Canadian canola exports had decreased by 9.5 per cent compared to a year earlier. But the decline is much less than many had feared and is a reflection of the success in finding alternative consumers for the surplus export stocks. Several European countries are importing more Canadian canola for biofuel production, and shipments to the Middle East have also picked up in recent months.

In terms of wheat, Statistics Canada estimated current season production at 32.3MMT, a minor reduction of 140,000 compared to their previous all wheat production forecast. This put production around 0.5 per cent higher than last season and 6.5 per cent above the five-year average.

While all wheat classes were revised lower compared to the September estimates, it was a year-on-year rebound in spring wheat production that drove wheat production higher overall.

Spring wheat production is forecast to rise by 7.2 per cent to 25.67MMT, the largest spring wheat crop in six years. The harvested area is estimated to be 6.5 per cent higher than last year, and the average yield of 3.48 metric tonne per hectare is slightly higher than the 2018 harvest.

Canada western red spring makes up 86.4 per cent of all spring wheat produced, up from 83.7 per cent in 2018/19, well above both the five and ten-year averages. Durum production was estimated to fall by 13.4 per cent to 4.98MMT, with a year-on-year increase in yield unable to offset a 22.6 per cent decline in the harvested area.

Barley estimates were revised higher compared to those released earlier in the northern hemisphere autumn. Statistics Canada put total production at 10.38MMT, an increase of 23.9 per cent over the 2018 number and 28.2 per cent above the five-year average. The increase was due to harvested area, up by 13.9 per cent, and yields, which rose by nearly 9 per cent to 3.81metric tonnes per hectare.

Agriculture and Agri-Food Canada are suggesting that year-on-year barley stocks will double, quite a bearish scenario, particularly for the Canadian farmer. Up to the end of November total barley exports for the current marketing year sat just north of 600,000 metric tonne, 4.4 per cent behind the 2018/19 pace. With the world well supplied for malting barley requirements, feed channels would appear to be the best hope of boosting exports.

Even the humble oat, now considered a ‘superfood’ in eateries across the globe, benefitted from the swing away from canola with the crop 21 per cent up on last year, at 4.16MMT, and 23.7 per cent above the five-year average.

Statistics Canada revised both the soybean and corn numbers lower compared to their September estimates. Soybean production came in at 6.05MMT, down 18.5 per cent from 2018 and 11.7 per cent below the five-year average. The corn crop is forecast at 13.40MMT, down 3.5 per cent from 2018, just below the five-year average. 

Unlike Australia, where a dry season has decimated national grain production, in Canada the wet has made 2019 a year to forget. Not only has it severely hampered the winter crop harvest, summer crop farmers are calling it the ugly trifecta. Late planting, far too much rain and snow through harvest and high-moisture grain meaning substantial drying costs will be incurred to bring it down to a market acceptable level. On top of the unharvested winter crop area, the adverse autumn weather has left many farmers facing unharvested corn paddocks into December and possibly beyond. Of all the issues the Canadian farmer has faced this year corn left standing in the paddock deep into the winter is perhaps the one they dread most.

China’s pork plight intensifies

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African Swine Fever (ASF) continues to decimate the domestic pig herd in China with hundreds of millions of animals now lost, either dying as a result of the devastating disease or killed in an attempt to contain the spread of the highly contagious virus.

According to the Chinese government, 40 per cent of the countries pig population has been lost since the outbreak was first discovered in August 2018. However, unofficial reports suggest that Beijing is being extremely conservative, and the world’s biggest swine herd is now more than 50 per cent lower than before the outbreak was announced. That equates to around 250 million pigs or almost 20 per cent of the global herd.

The double-stranded DNA virus causes a haemorrhagic fever with extremely high mortality rates in domestic pigs. In many instances, death can occur as quickly as one week after infection.

Infected pigs develop a high fever but show no other noticeable symptoms for the first few days. They then gradually lose their appetite and become depressed. In white-skinned pigs, the extremities such as ears, nose and abdomen turn blueish-purple. Eventually, they become unsteady on their legs, enter a comatose state and die.

The virus is amazingly resilient to a variety of curing methods and environmental conditions. There is currently no vaccine, it can endure extreme temperatures and can survive in frozen meat for several years.

The Chinese love their pork. It is a staple in their diet and accounts for more than 60 per cent of the country’s meat consumption. In 2017, the last full year before the outbreak of ASF, they consumed an average of 33 kilograms per capita. To put that in perspective, the average Australian consumed 28 kilograms, and in the US per capita consumption was 23 kilograms in the same year.

The significant decrease in the pig herd has led to an unprecedented shortage of pork in the world’s biggest pork market and has seen the ex-farm price increase by more than 125 per cent since July this year. Retail prices are said to have increased by almost 150 per cent in 2019. The soaring prices have been a significant contributing factor to rising inflation in China which hit an annualised rate of 3.8% in October.

In a bid to meet demand and arrest the surge in prices, the Chinese government has begun auctioning frozen pork from its state reserves. However, analysts indicate that deploying the pork reserves will not be enough to stabilise prices let alone reduce them, and they are expected to continue rising in the run-up to Chinese New Year in January.

One of the first ASF control measures implemented across the country last year was to close down small pig farms. In quite a controversial backflip, and despite the continued spread of the epidemic, Beijing is asking local government to reverse this policy in an attempt to arrest the production decline and shore up future supply.

The combination of strong demand, falling production, and spiralling prices have also put a rocket under Chinese imports. In September 2018, China imported 94,000 tonnes of pork. Twelve months later that number had increased by more than 71 per cent to 161,000 tonnes. And in October they were up to 177,500 tonnes. That pushed year-to-date imports past 1.5 million tonnes, an increase of 49.4 per cent on the previous corresponding period.

In addition to traditional suppliers such as Spain and Germany, China has been scrambling to approve new import origins such as Brazil, Argentina, Britain and Ireland. In early November they lifted a ban on imports of Canadian pork and beef that had been in place since June. This action suggests that Beijing does not want to be overly reliant on pork imports from the United States, especially as the “phase one” trade negotiations enter a critical phase.

The increase in global trade has led to a rise in pork prices in the major exporting regions. Pork prices in the European Union, China’s major supplier, have risen by more than 35 per cent since the beginning of 2019. And this trend is unlikely to reverse unless there is a significant, and quick rebound in Chinese production.

One positive sign is that China’s inventory of breeding sows rose by 0.6 per cent in October, the first monthly increase since April last year. On the 13,000 farms with pig production of greater than 5000 units per annum, the sow stocks increased by 4.7 per cent in October.

The total pig herd still declined by 0.6 per cent in October but was much lower than the 3 per cent drop in September. The October number was the smallest month-on-month contraction in more than twelve months and possibly signals the start of the recovery in the Chinese pig population. Only time will tell!

The Chinese government have stated that there will be a 10 million tonne shortfall in pork supply this year. And that will undoubtedly increase next year. The challenge here is that in 2018 total global pork exports were only 8 million tonnes. The global exportable surplus of pork is simply too small to fill the supply shortfall.

In a direct flow-on effect of the need for protein, Chinese imports of beef have also been increasing this year. October arrivals totalled almost 151,000 tonnes, an increase of 63 per cent in twelve months. In the first ten months of 2019 beef imports were 1.28 million tonnes, an increase of 55 per cent on the same period last year.

Australia does not have any pork plants approved for export to China and authorities have been waiting over two years to have 16 additional meat processing plants (including pork facilities) accredited by Chinese authorities.

However, we do have 35 beef plants with the required certification, and China’s importance as a destination for processed Australian beef has increased significantly in recent years. With the protein shortfall in China set to continue for some time yet, Australia’s contribution to this market should continue to flourish.

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