Eastern European dryness, falling demand tug at wheat

I’m covering several issues in this column, including the wheat market, some slaughter statistics that help measure the impact of COVID-19 on the meat industry and observations on the potato market and consumers’ lack of understanding of the scale of modern agriculture.

Two stories are at play. One is the weather. 

A dry spring in Ukraine and Eastern Europe, as well as concern about frost damage and dry weather in parts of the U.S. winter wheat belt, were adding support to prices.

The other story, which was becoming more predominant as this column was written, is concern about demand destruction resulting from the economic chaos caused by the fight against COVID-19.

The two stories were laid out in the International Grains Council report April 30.

“Less than ideal” growing conditions in Europe and Ukraine caused the council to cut its global 2020-21 wheat production forecast to 764 million tonnes, down four million from the previous month.

However, it made bigger changes to its demand forecast for the current 2019-20 crop year and the coming 2020-21 year because of reduced industrial use, particularly reduced ethanol production. The demand cut total for the two years was 10 million tonnes.

Once all the numbers were tallied, it sees stocks at the end of 2020-21 at 289 million tonnes, up from 279 million at the end of the current year and 265 million at the end of 2018-19.

Of course, the weather changes day by day, and the dry conditions in Europe and Ukraine were expected to be lessened by showers in the first two weeks of May.

Meanwhile, growers in parts of Kansas were assessing significant damage from frost in mid April. Ample rain crops would help crops bounce back, but much of the western half of the state had less than half the normal rainfall in the 30 days to May 1. The forecast for this week was for only scattered showers.

We know COVID-19 is causing production slowdowns and temporary closures in Canada and the United States, but what is the impact on total slaughter numbers?

Packers in March were operating at full bore to refill supply lines after the initial wave of consumer panic buying and the strong export pork demand from China, but by mid-April the disease was hitting plant workers hard.

Total beef slaughter in Canada was 61,545 head In the week ending April 4, about 1,000 ahead of the same week last year.

By the week ending April 25, which is the latest number available as this column was written, slaughter was down to 24,096, only 38 percent of the number slaughtered in the same week in the previous year.

The number for early May will be even worse.

Beef slaughter In the United States to April 25 was 469,000, about 73 percent of the same week the previous year.

The U.S. also has numbers for the week to May 2. Only 425,000 head were slaughtered, 63 percent of last year.

Canada’s pork plants are less affected. The Olymel plant at Yamachiche, Que., was closed for the first two weeks of April, hurting totals, but they quickly recovered.

In the week ending April 25, the total Canadian slaughter was 418,175 head, well ahead of the same week last year when only 361,723 head were slaughtered.

In the U.S., pork weekly slaughter has been steadily falling.

Slaughter was 1.995 million in the week to April 25, or 85 percent of last year.

In the week to May 2, slaughter was 1.545 million, or 77 percent of last year.

Clearly huge numbers of cattle are backing up in both countries and the pork situation in the United States is bad, with repercussions for Canada’s weaner exports to the U.S.

All through this COVID-19 crisis, consumers are getting educated about the scale of modern agriculture and the specialization of its supply chains.

But I believe most people, politicians included, can’t get their heads around it.

When farmers post photos of mountains of potatoes that processors can’t take because the market for french fries has collapsed, people ask why they can’t give them to food banks, or they observe that when they drive by the local fast food joint there are cars at the take-out window.

They don’t realize that 60 to 70 percent of potatoes grown go into fries or other processed products and only about a quarter are for fresh home use. 

Many restaurants are closed or operating at a fraction of their normal rate and, in the U.S., school lunch programs are closed. That means the market for fries and other processed spuds is way down. And it’s not just a domestic market. A large percentage of processed potatoes are exported. In Canada, only about a quarter of the frozen french fries processed are consumed domestically.

A scan of social media shows instances of American farmers giving away 20,000 pounds or 100,000 lb. or even a million lb. of potatoes to local charities or anyone who will take them, but the totals pale when you consider that the U.S. produces more than 40 billion lb. a year.

And that is just potatoes. Similar problems are happening all through the enormous and highly specialized food system, which is simply not designed to accommodate the tectonic shifts in consumer behaviour brought on by what U.S. President Donald Trump has coined “the invisible enemy.”

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