Cereals and Proteins- Situation and Outlook Industry Trends:
PEIGEC is utilizing its facilities and marketing capabilities to supply grains and oilseed products to customers throughout the Atlantic region and more recently, to the province of Quebec.
We offer the market place a clean dry product meeting certain minimum quality specifications: protein, energy, moisture, color, falling number, oil content, and dockage to name but a few.
Our customers also require another important quality parameter that is; absence of Fusarium. This material is toxic to most livestock species and if the level of infection is high enough,
the customer will refuse to take delivery. GEC has a program in place to monitor for the presence of this toxin.
A new service will be offered this year. In 2008, GEC has made an investment of just over $400,000 in new cleaning equipment in order to maximize the sales volume of high quality milling wheat.
Unsuitable product is withdrawn from the market. As well, an additional $1,000,000 dollars has been spent to upgrade scales and dryers so that we can continue to supply our customers with high
quality products and services.
New market opportunities are beginning to emerge. Products such as soybeans and canola are now appearing in greater quantities.
Currently GEC is considering the acquisition of suitable infrastructure to handle such products as there is not existing infrastructure currently in place. For these crops to be viable a
minimum volume of production is required to justify investment in the required infrastructure. GEC is assessing these requirements.
GEC is actively purchasing soybean. Due in part to the partial collapse of the hog industry, greater volumes has become available for export in the Quebec market. Both Forward Contracts and
access to a soybean pool have been popular with growers. New opportunities are evident. There are plans underway to erect a 600,000 metric tonne crushing facility in Quebec. More locally, oilseed
users are examining the cost benefit of local oilseed production in light of higher landed import costs. The potato processing sector may represent a major opportunity to sell oils locally.
General Situation Cereals & Oilseeds
Commodity
Estimated Deliveries (mt)
Current Price (old crop)
Estimated Sales Value
Initial Payment
Barley
11000
$ 220.00
$182.00
$130.00
Oats
2000
$ 185.00
$182.00
$130.00
Wheat
3000
$260.00
$202.00
$150.00
M. Wheat
22000
$425.00
$330.00
$182.00
Soybean
4000
$457.00
TBA
TBA
Corn
1000
$370.00
TBA
TBA
Barley-
GEC expects that 11000 metric tonne of barley will be delivered to our facilities this year down from previous years. Selling prices of barley have improved markedly through most of 2008.
In February the barley price peaked at $250.00 per mt. By July 2008, selling prices have now softened due to uncertain export prospects for barley, the potential for a greater supply, and lower
local demand. The estimated sales value set by the Board this year for barley is $182.00. The initial payment to the grower will be $130.00 per metric tonne.
Ethanol production is being subsidized by the U.S. and Canadian governments and more refining capacity is coming on stream; this has had the effect of driving up demand & prices for corn.
Since the Chicago futures market for corn is a major price discovery point for Atlantic cereals, it follows that any price increase for corn, translates into higher prices for local barley
provided of course that there is sufficient local demand. These higher prices mean that a greater acreage of North American corn has been planted. Hence greater supplies could be available
despite uncertain growing conditions once the yield pattern is established at harvest. Last fall, there was an opportunity to supply PEI barley for the International export market. Accordingly,
the PEI Grain Elevators Corporation and some Island growers were able to ship substantial volumes of barley at higher prices to Halifax for loading onto an ocean going vessel for subsequent
export. The prospects for an export opportunity of the same magnitude are somewhat diminished for the coming year.
The same subsidies that have driven up grain prices for growers have driven up feed grain prices to livestock feeders. This increase comes about at a time when Atlantic red meat producers
are struggling to make ends meet. For red meat processors the situation remains bleak as export markets are harder to penetrate due to the impact of the high Canadian dollar on an ability to sell.
The local hog plant is gone and the regional beef plant is facing significant challenges.
Feed Wheat-
Increased corn production has the same impact on the price of wheat as it does barley, although feed wheat is worth more because of its higher energy content. Corn prices also have an affect on
the feed wheat price whenever direct substitution can occur. That is, the price of corn can set a ceiling on the expected price for wheat.
Most growers do not specialize in the production of feed wheat. There is reasonably strong regional demand and firm prices offered for local feed wheat as it is a feed stuff that is readily
utilized by feed manufacturers in rations demanding higher energy levels and less fiber. The amount of feed wheat available is a function of the level of fusarium infection in milling wheat.
Until we have received and graded the milling wheat crop, GEC will not know the level of the total sales volume of feed wheat. There is down side risk possible if the supplies prove burden some.
Local fish food manufacturing plants can take some pressure off the local livestock feed industry otherwise; there is a risk that surplus products will need to find a home out of the region.
In the absence of any imports from other wheat producing areas, there are two sources of feed wheat available locally: one is the feed wheat crop grown specifically for that purpose; the other is
milling wheat that has been down graded to feed. This past year proved to be more favorable for the production of milling wheat with the result that prices have been stronger as there are only
limited quantities of feed wheat available. This has clearly strengthened the local prices offered for feed wheat. The estimated sales value for feed wheat this year is 202.00. The initial
payment to the grower will be $150.00 per metric tonne this year.
Oats-
The quantity of oats delivered to GEC is expected to be reduced this year. Estimated deliveries are not likely to reach the 2000 metric tonne level. This is due to a local acreage shift in favor
of crops such as milling wheat or soybean. Oats serve an important function in local feed production as they are a source of protein and add needed fiber and bulk to certain ration formulations.
They are not grown in the same quantities as barley or wheat. Neither is there the same level of demand for their use as feeders typically shy away from feeding oats to younger rapidly growing
animals. Nevertheless, the paying price for oats have held firm. There is excellent demand for oats as horse feed because that industry is highly developed on a regional basis. For this market
the product needs to be clean, bright and odor free. Excellent growing conditions, especially sunlight are required to produce a quality product. The estimated sales value for oats this year is
projected at $182.00. The initial payment to the grower will be $130.00 per metric tonne.
Milling Wheat-
Weather events may have adverse effects on the quantity & quality of milling wheat available. In wheat producing countries such as Australia; where they have experienced severe drought, this is
particularly evident this past year. Closer to home, greater demand for corn & soybean has shifted acreage away from crops such as milling wheat. Last year some local wheat was sold by GEC to
Dover Flour for in excess of $600.00 per metric tonne. Whatever the cause, the prices for milling wheat have been trending upwards.
More recently, prices have eased somewhat. The December futures price for Hard Spring Wheat has approached $9.00US per bushel. The P.E.I. Grain Elevators Corporation has a supply agreement in
place with a local flour mill guaranteeing to take delivery of all P.E.I. milling wheat prior to the end of the current crop year ending July 2009. GEC expects to receive up to 22,000 metric
tonnes this year. An analysis of the futures market plus factoring in of the local basis issues translates into a Canadian cash price of $330.00 per metric tonne. Options have been purchased on
the Chicago exchange to hedge 5000 metric tonnes for December delivery. Further futures derivative contracts may be purchased for March. Assuming that 70% of deliveries are milling wheat, this
will leave around 5000 metric tonnes unhedged. The estimated sales value for wheat is $330.00. The initial payment to the grower will be $182.00 per mt.
Corn-
This past year several Island farmers increased the seeded acreage of corn. Insufficient quantities of corn were received by the three elevators to establish any kind of an effective pool price.
High quality corn is imported onto the Island and, the price reflects freight costs coming to or leaving the Island. The landed selling price for imported corn in July 2008 is $370.00 per metric
tonne for small lots FOB the GEC elevators. This price is not expected to continue. Chicago futures contracts are trading in the $6.30 US per bushel for December delivery. Since there is no
expectation of new crop corn delivery before September30 2008, we have not quoted a new crop price.
GEC is aware that some market opportunity exists for high moisture corn. We have insufficient experience with the product to quote a price. Corn growers need to be aware that the costs to grow a
corn crop are high; especially if there is a requirement for drying. Two new GEC dryers are propane fired and this will make corn drying easier given existing equipment. The early onset of winter
and heavy snow fall hampers the fall harvest effort. GEC is not actively looking for this business.
Oilseeds: Soybeans-
With the recent collapse of livestock prices many livestock feeders; especially those who grow their own protein are currently evaluating their requirements. The result is that the GEC has been
in the position of exporting large quantities of soybeans off island that would otherwise be fed. GEC has been able to purchase soybeans for shipment out of province because of the current
interest in oilseeds for human consumption or bio-diesel. There is also increased demand for oils containing high levels of unsaturated fats. Products such as canola are in greater demand and at
higher prices. There are now several market opportunities available to growers for limited tonnages both for Identity Preserved soybeans and canola right here on PEI. GEC is not currently
involved in the marketing of these products. However, we are pursuing these markets.
The selling prices for PEI soybeans have approached a high of $500.00 per metric tonne FOB the elevator. This resultant wholesale price of approximately $400.00 has an appeal to growers and is
resulting in much interest in a forward delivery contract to Quebec.
For canola the GEC expects to price drying and handling infrastructure for 3-4000 metric tonnes of genetically modified products. We will attempt to quantify the cost of local crushing versus, a
landed Quebec price.
Outlook-
The outlook for grains and oilseeds pricing in the coming year is uncertain. The crop is now in the ground. All stakeholders will need to pay attention to local market signals. GEC will focus on
export opportunities that will reflect the overall demand for grains and oilseeds producers as well as any opportunities in international markets. If the product cannot find a home locally it
will need to be exported to wherever the market opportunity exists. Freight costs can erode the price a producer may be expected to receive. As with all markets and pricing, the planted acreage
and weather have major impacts on the supply side.
GEC will focus on marketing the local milling wheat crop, followed by efforts to market barley, and soybeans followed by feed wheat and oats. We expect to handle in excess of 40,000 metric tonnes
again this year.
There is no guarantee that a ship will be in Atlantic Canada any time soon and with it the possibility of a readily available export market opportunity. In the absence of this there will very
likely be a further erosion of demand hence softer prices. GEC will develop relationships with the those responsible for exporting grain to visit Atlantic Canada and make sure that growers cans
avail themselves of any opportunity should it arise. Again, growers need to be aware that toxin levels, moisture, protein, and bushel weight can affect the price paid for the grain.
In the case of feed wheat and milling wheat, there is expected to be continued strong demand. The critical things to watch are the planting intentions and weather. As mentioned there is strong
demand within the region for both feed wheat and milling wheat. In fact, it is reported that Dover Flour had now purchase a mill in Quebec providing access to a further 600,000 metric tonne
market in that province.
Demand for soybean; the primary oilseed product in which the GEC currently trades is expected to remain strong for the nearby future bolstered by rising energy prices. This means that there have
been acceptable forward contracting prices available. However, growers should be cautioned that reduced livestock production in the region means that GEC needs to ship the product to markets
farther away than in the past. This fact along with the reality that bean pricing is on a "net export" basis may dampen future price prospects. GEC will focus on the cost of acquiring oilseed
handling infrastructure and will assess the opportunities to market processed oil locally or raw canola and soybean exports to markets such as those emerging in Quebec.