Canada Markets

The USDA released an interesting study which provided projections for the United States and global agriculture industry out to 2022. After taking into account a long list of assumptions regarding the economy, government policies, weather and global trends, projections were made for commodity supply, demand and trade until the year 2022.

This analysis was completed over the October-December time period. The USDA cautions that this work should not be viewed as a forecast, but rather a scenario that may play out "under these very specific circumstances and assumptions." The entire document can be found at www.usda.gov/oce/commodity/projections/USDAAgriculturalProjections2022.pdf.

The report limits the potential for grains and oilseeds from a price perspective until 2015, as the world reacts to the higher prices and opportunities presented as a result of the 2012 U.S. drought. High prices cures high prices, as the world will attempt to quickly respond to high prices with increased production. From 2015 forward, grains are forecast to react to global economic growth combined with global population growth and move higher.

From a macro perspective, global population is to grow by 1% annually, as compared to the 1.2% over the past 10 years. Population growth is the highest in developing countries, where the share of the global population in developing countries grows to 82% by 2022 from 80% in 2010. The demand for all commodities will be affected due to this growth, with oil prices in the U.S. forecast to be $93.20 in 2013 and climbing to $122/barrel by 2022.

The growth in bio-fuel demand is suggested to continue although at a slower pace than experienced over the past decade. The top seven producing nations, of which Canada is included, now produce 90% of the world's biofuels. This group is forecast to increase their bio-diesel production by 30% and ethanol production by 40% over the next 10 years. Canada's ethanol industry is forecast to grow 35% in the next 10 years, based on the use of corn imports as a feedstock. Canada's biodiesel industry is expected to grow 28%, with canola making up 40% of the feedstock.

COARSE GRAINS

Global course grain trade is expected to grow by 27% or 36 mmt annually over the next 10 years. While there is growth in livestock populations in many key regions, the forecast for imports of corn into China represent 40% of the world's increase in corn trade over the 10-year period.

Global barley trade is suggested to increase by 3.6 mmt annually, which represents a 20% increase, to 22 mmt in 2022. Increases in both malt and feed are behind this growth. Canada is noted in this report as a major supplier of malt barley to China, along with Australia, but also noted is Canada's slide in barley production due to superior returns from oilseeds. Malt barley production is expected to account for a greater share of Canada's total barley crop over the next 10 years. Canada's total course grain exports are forecast to fall .2% over the next 10 years.

WHEAT

Global wheat trade is expected to increase by 22 mmt annually, or 16% to 164 mmt annually. Per capita consumption is expected to fall over the 10 years in question, while growth in demand is related to countries with a growing population and a shift towards middle-income earners. The five largest exporters, which are the U.S., Australia, the EU, Argentina and Canada, will account for 60% of the world trade by 2022, down from 70% over the past 10 years. These exports are largely lost to Black Sea countries, which are forecast to capture 80% of the increase in trade over the upcoming 10-year period. While U.S. annual exports are forecast to fall by 17% over the next 10 years, Canada is expected to maintain their level of exports despite slight pressure on wheat acres from competing crops.

SOYBEANS

Strong vegetable oil demand will be the driving force behind oilseed prices, which bodes well for the high oil-content canola that Canada produces. Both economic and population growth are behind this demand growth. Global soybean trade is forecast to grow by 37% in the next 10 years, largely due to expansion in domestic crush capabilities in China. Soybean oil trade is forecast to rise by 21% and soybean meal is forecast to rise by 19% over the same time frame. The U.S. is forecast to continue to lose share to South America over the upcoming 10 years, from 29% of the global share today, to 24.5% in 10 years.

While there are few references to canola in this study, one could make many of the same conclusions with respect to the demand for canola and its products. One interesting point made is that the U.S. will double its exports of soybean oil to reach 1.2 mmt and hold its spot as the world's third largest exporter of soybean oil. At the same time, suggestions are made that the U.S. will continue to significantly grow its imports of canola oil from Canada to boost its domestic supply.

2013/14 FORECASTS

In the short term, the USDA has called for a smaller seeded acreage of corn in 2013/14, at 96 million acres. Yield is forecast at 163.5 bu./ac which is close to a 34% increase from last year's 122.3 bu./ac yield. Harvested acres will recover to historical numbers, resulting in a 14.435 billion bushel crop, as compared to last year's 10.725 bb crop. Ending stocks are forecast to more than double to 2.067 bb, which will undoubtedly keep prices on the defensive.

Soybean acreage is expected to fall to 76 million acres, with yield recovering to 44.4 bu./ac as compared to last year's 39.3 bu./ac. Total production is forecast to rise to 3.335 bbu from last year's 2.971 bb. The carryout is forecast to recover by 45 million bushels to 185 mb.

Planted acres for wheat were forecast to increase by 3.2% to generate a 2.19 bb crop, down slightly from last year. Ending stocks are forecast to increase by 19 mb to 733 mb.

Once again, this data reflects what could happen given assumptions made. Many would argue that certain statistics for the current crop year fall short of realistic data, with one such example being soybean exports, which seem to be on a pace far ahead of that reflected by current USDA data. This increases the risk of projections made over the 10-year period.

Another concern would be the use of trend-line analysis to peg crop yields. Last week I discussed the dangers of the use of trend-line analysis to forecast yields, with the most obvious example being U.S. corn yields. U.S. corn yields have fallen far short of trend over the past three years.

One thing that is encouraging from this study is the forecast for global demand growth. It appears that the impacts may not necessarily be seen until 2015 and may ultimately create sizeable challenges for the exporting nations to meet.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

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